Review of CRU Polyhalite Market Study April 2014

Transcription

Review of CRU Polyhalite
Market Study April 2014
prepared for
AMEC
January 2015
Review of Polyhalite Study for AMEC
Table of Contents
Glossary .............................................................................................................................. 4
Executive Summary ............................................................................................................ 5
Key Conclusions .................................................................................................................................. 5
Market Overview .................................................................................................................................. 6
Methodology ........................................................................................................................................ 6
Economic Analysis .............................................................................................................................. 7
Market Overview ................................................................................................................. 9
Introduction .......................................................................................................................................... 9
Demand Forecasts .............................................................................................................................. 9
Muriate of Potash (MOP) ................................................................................................................. 9
Sulphate of Potash (SOP) ............................................................................................................. 11
Sulphate of Potash + Magnesium (SOPM)................................................................................... 12
Ammonium Sulphate (AS) ............................................................................................................. 13
Single Superphosphate (SSP) ....................................................................................................... 14
Comparison of the CRU and FERTECON Forecasts ....................................................................... 15
Key Product Forecasts................................................................................................................... 15
NPK Forecasts ............................................................................................................................... 18
Total K2O Forecasts ....................................................................................................................... 20
Market Overview Conclusions ........................................................................................................... 20
Methodology...................................................................................................................... 23
Introduction ........................................................................................................................................ 23
Audit Methodology ............................................................................................................................. 23
Audit Results ..................................................................................................................................... 26
USA ................................................................................................................................................ 27
India ............................................................................................................................................... 28
Ireland ............................................................................................................................................ 28
Thailand ......................................................................................................................................... 29
Turkey ............................................................................................................................................ 30
Kenya ............................................................................................................................................. 30
Summary & Conclusions ................................................................................................................... 31
Economic Assessment ..................................................................................................... 35
Introduction ........................................................................................................................................ 35
Product Assesment ........................................................................................................................... 35
MOP ............................................................................................................................................... 35
SOP................................................................................................................................................ 36
Sulphur – AS and SSP................................................................................................................... 37
Magnesium .................................................................................................................................... 39
Other Sources of Polyhalite ............................................................................................................... 40
Cleveland Potash ........................................................................................................................... 41
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CONTENTS
Intercontinental Potash Corporation .............................................................................................. 42
Chloride Free Potash ......................................................................................................................... 43
Other Aspects of the Economic Assessment .................................................................................... 46
Freight Costs .................................................................................................................................. 46
Fertilizer Application Costs ............................................................................................................ 48
Industry Response ......................................................................................................................... 50
Conclusions of the Economic Assessment ....................................................................................... 53
Conclusions ...................................................................................................................... 56
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CONTENTS
Glossary
Acronym
AAPFCO
Definition
Association of American Plant Food Control Officials
AN
Ammonium nitrate
AS
Ammonium sulphate [(NH4)2SO4]
CAGR
Compound annual growth rate
CAN
Calcium ammonium nitrate
CFR
Carriage and Freight
CIF
Carriage, Insurance and Freight
DAP
Diammonium phosphate
FAI
Fertilizer Association of India
FOB
Free on Board
IFA
International Fertilizer Industry Association
K
Potassium
K2O
Potassium oxide - a measure of the potassium content in a fertilizer
Kainite
Double-salt mineral of potassium chloride and magnesium sulphate [KCl. MgSO4.3H2O]
Kieserite
Mineral of magnesium sulphate [MgSO4]
Langbeinite
Double-salt mineral of potassium sulphate and magnesium sulphate [K 2SO4.2MgSO4]
MAP
Monoammonium phosphate
MOP
Muriate of Potash, or potassium chloride [KCl]
N
Nitrogen
NK
Compounded or blended fertilizer containing Nitrogen and Potassium
NP
Compounded or blended fertilizer containing Nitrogen and Phosphate
NPK
Compounded or blended fertilizer containing Nitrogen, Phosphate and Potassium
P
Phosphorus
P2O5
Diphosphorus pentoxide - a measure of the phosphate content in a fertilizer
p.a.
per annum
PK
Potash
Compounded or blended fertilizer containing Phosphate and Potassium
Triple salt mineral of potassium sulphate, magnesium sulphate and calcium sulphate
[K2SO4.MgSO4. 2CaSO4.H2O]
Potassium compounds used as fertilizers
SOP
Sulphate of potash, or potassium sulphate [K2SO4]
SOPM
Sulphate of potash with Magnesium
SSP
Single superphosphate
st
Short ton (2000lb or 907.19 kg)
Sylvinite
Double-salt mineral of potassium chloride and sodium chloride [KCl. NaCl]
T
tonne (1000 kg)
TSP
Triple superphosphate
Polyhalite
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CONTENTS
Executive Summary
INTRODUCTION
As part of the application process for the York Potash Ltd. polyhalite project, the North York Moors
National Park Authority (NPA) received a number of documents related to the overall potash market in
general, and the market for polyhalite in particular. These documents had been commissioned by
Sirius Minerals, and as part of the review of them the NPA required an independent assessment of
the key market document, a study completed by the London-based business consultancy CRU,
entited Polyhalite Market Study: April 2014. This document records FERTECON’s assessment of that
report. As part of the review process FERTECON has also been requested by the NPA to provide an
opinion on some of the key findings, especially relating to the relationship between the potential sales
volumes and the price level at which those volumes might be achieved.
KEY CONCLUSIONS
Our overall conclusion is that whilst CRU’s study is robust in terms of its data and methodology, by
omission it does not take in to account the impact of the market structure of the industry and the practical
implications of product formulation on the potential market for polyhalite.
The evidence suggests that the theoretical maximum potential market for polyhalite in 2018 is up to 50
million tonnes, comprising between 35 and 40 million tonnes in substitution of MOP, 9 million tonnes in
substitution of SOP, and up to 5 million tonnes in substitution of SOPM. To sell 13 million tonnes will
present York Potash with choices in terms of marketing. If it chooses to market solely against SOP and
SOPM it may be able to secure higher price levels for polyhalite, but will need to take up to 78% of the
theoretical maximum potential market by 2025 in order to market 13 million tonnes of polyhalite. If it
chooses to broaden its marketing scope to include substitution against MOP it will have a larger theoretical
market to approach, but as most of the users will be common to the SOP substitution market (the blenders
and compounders) the opportunity to obtain a premium over the substitution value for MOP will be
restricted. As these are theoretical maximum market sizes, the risk is to the downside, i.e. a smaller
market.
The net selling price obtained by York Potash will depend on the choices it takes. CRU’s demand model
suggests that the maximum market with no industry response at $170/t is 13 million tonnes, and at $150/t
is 15 million tonnes. CRU concluded that for York Potash to sell 13 million tonnes either prices needed to
be less than or equal to $170/t fob Teesside where there was no reaction from incumbent producers, or
that with a significant reaction price levels at the limit would need to be below $110/t. We agree with this
conclusion, but believe that although the industry response is not likely to be so intense as to trigger the
lower limits, there will be an industry response. We therefore believe that to market 13 million tonnes the
likely price range will be between $110/t and $150/t, with the precise position in that range determined by
the marketing choices taken by York Potash, and the balance it can make between maximising prices
premiums and the time it is prepared to take to build volumes.
FERTECON agrees that there is a range of possible price outcomes for York Potash. In our opinion, if
York Potash wishes to sell 6.5 million tonnes annually by the end of 2021 and 13.5 million tonnes annually
by the end of 20241 it is probable that the average pricing will need to be toward the lower end of the
pricing range. As with many mining projects, depending on how the project is financed (debt versus equity),
the mine may well need a utilisation rate of between 35% and 45% to cover all financial charges in the
timeframe up to 2025, which supports the concept of a rapid build up of volumes as the objective is to be
profitable, not to break-even. All volumes sold above the threshold level needed to pay the financial
charges are incrementally more profitable and therefore desirable which supports the concept of a
competitive price framework to maximise volumes. This is the essence of commodity businesses – as long
as the sales are profitable it makes sense to move volumes.
1
York Potash Economic Impact Report; Quod; September 2014, p. 63
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EXECUTIVE SUMMARY
We agree with CRU’s opinion that the potential market size for polyhalite will be dependent on the price of
the product, which will also be influenced by the reaction of the suppliers of alternative competitive
products. We therefore agree with the implicit conclusions of CRU’s study, presented in their “Polyhalite
Demand Window”3, that the likely window of prices that can be achieved are between $110 and $150 per
tonne. Our opinion is that because of:
 The challenges of building a market for a new product
 The fact that most sales will to be made to blenders and compounders, who will want to see a
commercial benefit versus alternative products to justify adding a new raw material to their inventory
 The probability that not all farmers will be prepared to pay for the breadth of nutrients in polyhalite –
i.e. they might accept a formula containing sulphate or magnesium, but will not be prepared to pay
for those nutrients. By extension blenders and compounders will not pay premiums for nutrients
unless they can successfully pass them on to their customers, the farmers.
 The higher logistics costs associated with polyhalite per tonne of nutrient delivered to blenders and
compounders
 The potential threat to SOPM and SOP volumes, where polyhalite could substitute 100% and around
40% of total volumes respectively, and therefore where a competitive reaction is likely to be more
robust than versus MOP
 The need to maximise the potential market in order to give greater certainty of meeting sales targets
– based on CRU’s model 6.5 million tonnes and 13.0 million tonnes represent 43% and 86% of the
potential demand at $150, but only 20% and 40% of potential demand at $110/t, and it seems
unlikely that any one company could achieve such penetration levels. Tt $110/t the penetration levels
are reduced to 20% and 40%.
…we would expect the net pricing achieved will be in the lower half of this range ($110 - $130/t) in
order to meet an objective of the planned sales levels. This is because they will need to maximise the
potential market in which they can sell. We would not argue that a base-load volume could not be achieved
in the upper half of the range, but to rapidly build a market of over 13.0 million tonnes over a 6 year period
(2019 to 2024) the product will need to be highly competitive compared with alternative products.
MARKET OVERVIEW
The market analysis presented by CRU is in our opinion fundamentally robust. FERTECON has different
views on most of the metrics (market size, growth rates, prices forecasts) but mostly these are differences
of opinion and do not impact on the general conclusions that should be drawn from the analysis.
There is one clear difference in assessment of market outlook relating to the product single
superphosphate (SSP). CRU expects global demand for this product to grow, whereas FERTECON
expects it to fall. However, as SSP is mostly marketed for its phosphate values, and as its importance in
the NPK market is declining in favour of phosphates such as monoammonium phosphate (MAP) which do
not have the formulation compatibility issues associated with SSP, we think that the influence of this core
difference of view will have on the analysis for polyhalite is marginal.
The data set pertaining to the market size for NPKs is generally poor, and therefore it is not possible to
completely validate CRU’s assessment of the market. However, based on both their report and
supplementary questions from FERTECON we understand how they have arrived at their assessment and
believe it to be order-of-magnitude correct. Any difference of assessment by FERTECON is based on
equally poor data, and therefore is no more likely to be correct or incorrect than CRU. Based on
FERTECON’s assessment the probability is that CRU has under-estimated rather than overestimated the
market size, and therefore any conclusions drawn from it in terms of potential for polyhalite are likely to
underestimate potential, which has no detrimental impact on their analysis.
METHODOLOGY
In order to assess and audit CRU’s methodology we completed a different analysis of the market, where
we analysed the data available in terms of the actual consumption by grade in different countries around
the world. For each grade we attempted for formulate it with polyhalite, with the objective of maximising its
use. In all we looked at 269 different NPK, NK and PK formulations. From this analysis we were able to
3
Polyhalite Market Study: April 2014; CRU Consulting; April 2014; p. iv
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EXECUTIVE SUMMARY
draw conclusions as to the relationship between the overall nutrient content of the fertilizers and the ease
with which polyhalite could be incorporated in the formulation, and the potential difference in application
between the market for blended fertilizers and the market for compounded fertilizers. We have completed a
similar exercise for chloride-free formulations, albeit with a smaller number of formulations (95). It is
important to note that at least 80% of all standard and granular SOP is sold to blenders and compounders
and therefore the methodology is important in assessing the market potential for replacing SOP in the
chloride-free sector.
Our analysis showed that CRU’s methodology in terms of assessing the market size for polyhalite is robust
in terms of showing the probable theoretical maximum size of the market. FERTECON’s analysis, which
used CRU’s overall estimate of the NPK / NK / PK market size, gave a marginally larger market, but our
assessment had no price constraint. We therefore think that a theoretical maximum potential market size
for polyhalite in 2018 assuming the product is competitively priced is between 35 million and 40 million
tonnes when substituting MOP; around 9 million tonnes when replacing SOP, and just over 4 million tonnes
when replacing SOPM, This suggests theoretical maximum market size in the range of 50 million tonnes
polyhalite.
It is important to note that this potential does not take account of the real practical issue that not all farmers
will want the additional sulphate and magnesium incumbent in polyhalite in their NPK blends and
compounds. There is no practical way to assess what proportion of the potential market would be affected
by an unwillingness to take magnesium and / or sulphate containing fertilizer, but we can conclude it will
moderate, rather than extend, the potential market.
A key conclusion from the CRU methodology is that there will be a direct relationship between price and
market size. We agree with this. However CRU’s methodology does not elaborate on the implications of
this, i.e. that the higher the price, the larger the share of any potential market will be the volume of 13
million tonnes that York Potash is seeking to sell. Polyhalite is a commodity, and therefore the prime
differentiator for the product versus its competition will be price. In commodity businesses the higher the
level of market share required, the more competitive the price needs to be. The implication from this is that
York Potash’s marketing strategy will have a significant influence on its net selling price, and compromises
will be required between the speed the market is developed and the maximum selling price achievable.
ECONOMIC ANALYSIS
We think that the analysis presented by CRU in terms of the potential market for polyhalite at different price
levels is reasonably robust. We think that it would be more appropriate to use FOB European values for
granular MOP than CIF values, and that this would reduce the intrinsic value of K2O by around $11/t
polyhalite. In practice, because of the inherent theoretical aspects of the approach in general, what this
means is that FERTECON’s assessment of the likely range of prices achievable is a little lower than
CRU’s. This means that at the same prices FERTECON would expect the market size to be a little smaller,
but given the other variables in the assessment would not mean any difference to the conclusions, just
marginal differences in expected threshold values.
Our conclusion on the economic analysis is that for York Potash to sell 6.5 million tonnes growing to 13
million tonnes of polyhalite it will need to maximise the potential market, which is likely to have an impact
on the net selling price it can achieve. York Potash notes that the key variables influencing the price
include:
 The speed of production ramp-up into the market, which will be controlled by the company.
 The level and quality of the agronomic performance data at the time the marketing commences. The
influence this will have, positive or negative, has yet to be proven.
 The competitive response from existing suppliers. York Potash can influence this response in terms
of the mix of existing suppliers they target, but clearly have no influence on the actual response from
each individual supplier.
 The commercial arrangements with customers.
FERTECON’s assessment of the probable price range is that it will be between $100 and $150/t polyhalite,
the precise level being determined by the marketing decisions taken by the company. The key factors that
influence this conclusion are:
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EXECUTIVE SUMMARY

The relationship between price, market size and share. For example, at a price of $150/t the
total potential market globally is approximately 15 million tonnes. In order to sell 6.5 million tonnes
York Potash will need to sell to just over 43% of the theoretical total potential market and to sell 13
million tonnes it will need to sell to 86%, which also assumes a very high level of market
knowledge to have correctly identified potential users. This may be possible over time, but it clearly
illustrates the choices open to the company – by reducing the price they will increase the
theoretical potential market which gives greater scope for successfully achieving volume targets.
Conversely at $110/t the market size will be over 32 million tonnes, and the threshold penetration
rates at 6.5 and 13.0 million tonnes fall to 20% and 40% respectively.

Polyhalite is a commodity and commodities trade on price. If Cleveland Potash and York Potash
are successful they may attract other producers into the market, and they will need to compete
with each other. It is generally true that three producers would grow the market much more rapidly
than one, but for this to be true the products will also need to be similar. If producers are selling
generally similar products then the main distinguishing point is price. This again illustrates the
choices between volumes and share versus price.

Using polyhalite will require investment by most users in more storage or handling equipment.
Polyhalite is unlikely to completely substitute another product and therefore to use it blenders
might need to invest in a new storage silo, feed hopper etc. To make this investment they will want
to be convinced of a long-term return, i.e. a commitment to competitive prices versus competing
products. It reinforces the view that the product is likely to sell based on a prime nutrient (either
K2O or sulphate) with the presence of other nutrients not attracting a significant monetary value,
but effectively buying share.

Supply will be limited for the foreseeable future, assuming the York Potash project is
commissioned. Buyers generally want accessible competition for any commodities they buy, and
there might be consumer reluctance to commit to polyhalite based on the limited number of
producers. To overcome such fears the price offering will need to be compelling.

It is a new product. Consumers will want to see agronomic data to prove why polyhalite, as
opposed to a combination of similar levels of the same nutrient from other sources, offers value
before they would consider paying premiums, and even if such evidence is forthcoming they will
want to complete their own trials with customers before fully backing the product. This suggests
that either York Potash will need to patiently build the market to obtain maximum value, or chose to
take volumes by competing on price.
Our analysis of industry response suggests that if producers of competitive potassic fertilizers behave
rationally, it is more likely that they will err toward CRU’s No industry response rather than the High industry
response. This is because the market for polyhalite is constrained by its low K2O analysis. Polyhalite is only
likely to take up to 35% of K2O at any blender, and quite possibly less depending on the mix produced. The
risks to the remaining 65% of the K2O which will continued to be supplied by MOP or SOP are such that the
competitor will need to be completely confident that reducing the price will keep polyhalite out before they
reduce the price – there is a higher risk of not succeeding and then still only having a 65% share but at a
lower price. However this rationale is much clearer for MOP, where the share of potential substitution is
lower than for SOP. Polyhalite could theoretically take up to 13% of the total MOP market compared with
around 40% of the SOP market, and therefore the marketing choices taken by York Potash will influence
the competitive response they receive. The reaction of suppiers of sulphate (AS, gypsum, or sulphur) will
be different as production of these products is either completely or partially involuntary, and it is more
important to move the product than to maintain a price level.
Should York Potash chose to market the sulphate in polyhalite rather than K2O as the primary nutrient most
of the arguments relating to the marketing choices facing the company also apply. The market for sulphate
products is currently smaller than for K2O, and the nutrient value in polyhalite is higher, i.e. the share it
would need to take is higher. The intrinsic value of sulphate is lower than K2O, partly due to the fact that
involuntarily- produced sulphate products are avaliable. If York Potash should chose to concentrate on
marketing polyhalite as a substitute for sulphate products then the pricing it would achieve in order to sell
6.5 million tonnes would be lower than presented in the analysis, and they would need to be highly
competitive on price in order to sell the volume.
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EXECUTIVE SUMMARY
Market Overview
INTRODUCTION
In CRU’s report they present a point-in-time forecast for demand in 2018 (Table 5.1). This is the only
comprehensive view given in the Study of their understanding of the current market for potash fertilizers
and single superphosphate. In this section we will review FERTECON’s forecasts for the products listed in
CRU’s demand forecast for 2018 to assess any material differences.
As a general comment on the analysis, it is worthwhile confirming that the data sources used by CRU are
likely to be common across the consulting community that analyse the fertilizer industry. The core data set
is compiled by the International Fertilizer Industry Association (IFA), which obtains production data directly
from members, and then publishes global data for members having disguised individual companies by
reporting at the national or regional level. IFA also publishes trade data. Most of the consultancy
companies use the IFA production and trade data, which they augment from other sources, such as
company reports (many public companies provide some production data in their annual reports), detailed
trade data obtained from companies specialising in its compilation such as Global Trade Information
Services (GTIS), and other trade associations and Government sources. It is therefore to be expected that
there will be differences between CRU’s and FERTECON’s assessment of the market in 2013, but it would
be surprising if the differences were substantial. As part of our review CRU has provided us with their
global demand totals for 2012 and 2013 which were not in their Report. We have therefore been able to
assess whether any differences are related more to opinions on potential growth, or differences of the
assessment of the current size of the market.
It is also appropriate to note that there will be certain discrepancies between CRU’s data and FERTECON’s
data based on the regional segmentation. All consulting companies have different regional segmentation
which can be based on either or both of geographic or political splits, and therefore difference between the
data for a region such as Europe should not be given too much weight. In CRU’s segmentation there will be
commonality with FERTECON for North America (Canada and USA), China, India and probably South
America (all other countries in the Americas other than Canada and the USA). Europe, SE Asia, SubSaharan Africa and ROW are all open to interpretation. Of greatest concern to us therefore is the global
totals for each product.
In this section we will give an overview of our forecasts for market demand for the key products identified
by CRU – MOP, SOP, SOPM, AS and SSP. We do not routinely complete forecasts on kieserite
(magnesium sulphate), and in the CRU study there was no write-up on the product, only a statement of
their forecast, which we will review based on what we know of the industry.
DEMAND FORECASTS
MURIATE OF POTASH (MOP)
World demand for MOP (KCl), in 2013 was some 53.2 million tonnes product, or 31.9 million tonnes K 2O,
assuming an industry standard conversion factor of 1.0t MOP containing 0.6t K2O. Demand in 2003 was
46.1 million tonnes product, which means that global demand for MOP has grown at a compound average
growth rate (CAGR) of 1.4% p.a. over the last 10 years.
Based on our global segmentation, Asia is the largest market for MOP, consuming around 21 million
tonnes, followed by Latin America (11 million tonnes) and North America (9 million tonnes). The ranking of
Latin America and North America has changed over the last 10 years as North America was until 2008 the
second largest market. This change is illustrative of the wider trend in demand for fertilizers where growth
is driven by the emerging agricultural nations such as Brazil and China, and is stable or declining in the
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MARKET OVERVIEW
developed regions such as North America and West Europe. Looking forward to 2025 we expect this to
continue, with low or no growth in North America and West Europe and reasonably buoyant growth in Asia,
Latin America, and (albeit from a low base) Africa.
On a national basis the market is quite concentrated. The top 5 national markets (in descending order
China, Brazil, USA, India and Indonesia) consume almost 61% of global MOP, and the top 15 national
markets consume 80% of global MOP. This level of concentration is forecast to increase slightly through to
2025. By 2018 the top five consuming nations will use around 63% of global MOP, increasing to almost
66% by 2025, although Russia will come into the mix with and vie with Indonesia for 5th place. The top 15
nations will increase their share to 82% in 2018 and on to 83% in 2025.
The main underlying drivers for MOP demand are the same as for all fertilizers – population growth and
changing economic prosperity. The impact of the number of the people the planet needs to feed on fertilizer
demand is clear. Economic prosperity dictates the diets people can afford and the consequent demand for
meat and for the cereals needed to raise the livestock. It also influences the priority given to development
goals such as the adoption of biofuels, and the consequent need for fertilizer to produce them. Other key
drivers include the availability of undeveloped land suitable for agriculture, and on an annual basis local
issues such as the weather, inventories of crops, and the future prices of crops (and hence the amount of
money available to the farmer to spend on fertilizer). Technology is having an impact on fertilizer use –
using soil mapping and GPS farmers now have the ability to apply varying rates of fertilizer across fields to
optimise usage, and applicators can now target fertilizer spreading such that it is only distributed in the
region of the plant roots and not in the furrows in between. Technology will increasing ensure that fertilizer
use is optimised to reduce wastage and therefore act to suppress growth rates.
FERTECON forecasts MOP growth to average 5.6% p.a. between 2013 and 2018, and around 3.5% p.a.
between 2013 and 2025. This will take demand from 53.2 million tonnes in 2013 to 69.9 million tonnes in
2018 and around 80 million tonnes in 2025. The shorter term growth is expected to be boosted by greater
demand for potash in Russia as commercial farmers re-establish application rates closer to the norms in
developed agricultural regions, or perhaps more pertinently closer to rates that were in place prior to the
collapse of the Soviet Union in 1990. As developing economies mature and the ability to access new land
for cultivation reduces, so will annual growth rates. The forecast is illustrated in the following diagram.
MOP GLOBAL DEMAND FORECAST TO 2025 (‘000 T PRODUCT)
‘000 t Product
90,000
80,000
ROW
70,000
Latin America
60,000
50,000
North America
40,000
30,000
Asia
20,000
10,000
Europe
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Base Data: FERTECON
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MARKET OVERVIEW
Although we expect annual global growth rates to drop to between 1% and 2% p.a. into the 2020s, it is
important to note that in the historical context such rates are normal. Potash usage actually declined during
the 1980s, and the CAGR for MOP growth between 1991 and 2000 was 1.6% p.a. Growth was significantly
stronger during the 2000s, but this was a reflection both of the market and a recognition that the volumes of
potash used were not optimizing yield. The latter issue has steadily been corrected during the 2000s and in
to the current decade, with the result that most future growth will be as a result of market fundamentals,
and growth rates will drop accordingly.
SULPHATE OF POTASH (SOP)
World demand for SOP in 2013 was 4.53 million tonnes product, or 2.26 million tonnes K2O assuming the
industry standard conversion factor of 1.0 t SOP containing 0.5 t K2O. Demand in 2003 was 3.41 million
tonnes, giving a global CAGR for the product of 2.9% p.a. over the last 10 years.
China dominates demand for SOP, accounting for between 50% and 55% of total global demand in any
given year. China’s usage of SOP is influenced by both demand and supply-side factors. On the demand
side the crops that either require or grow best using chloride-free fertilizers, such as tobacco and fruit and
vegetables are proportionally particularly important in China. It is also the case that China has a large
capacity for natural4 SOP production (4.7 million tonnes) and is a significant net importer of MOP, and
therefore it is likely that SOP is used on a wider range of crops than might be considered normal
elsewhere.
Because of the influence of China, the SOP market is also highly concentrated, with the top 5 consuming
nations (in descending order China, USA, Norway, Finland and Japan) consuming 70% of global demand,
and the top 15 nations consuming 85% of global demand. Norway and Finland’s presence in the top five
might surprise readers, but this is because the Norwegian-based fertilizer producer Yara has significant
NPK production capacity in both countries, and SOP will be used extensively in their chloride-free
formulations which are then shipped around the world.
Growth for SOP is expected to moderate. It will continue to be relatively strong through to 2018 with a
CAGR for SOP demand averaging 8.2% p.a., which will moderate to 3.5% to 2025. Global demand will
grow to 6.7 million tonnes by 2018, and to around 6.9 million tonnes by 2025. Asia will continue to
dominate global demand, consuming between 56% and 59% of global SOP annually throughout the
forecast. The other main consuming region is Europe, which typically accounts for between 16% and 18%
of global demand. Our demand forecast is illustrated in the following diagram:
4
SOP can be produced in two ways. It can be extracted from SOP-containing brines, such as those containing
langbeinite or polyhalite. It can also be produced synthetically using the Mannheim Process, where MOP (KCl) is
reacted with sulphuric acid to produce potassium sulphate and hydrochloric acid. Historically the Mannheim
process dominated supply, but more recently lower cost production from natural brines has become more
prevalent.
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MARKET OVERVIEW
SOP GLOBAL DEMAND FORECAST TO 2025 (‘000 T PRODUCT)
‘000 t Product
8,000
ROW
7,000
6,000
Latin America
5,000
4,000
North America
3,000
Asia
2,000
1,000
Europe
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Base Data: FERTECON
SULPHATE OF POTASH + MAGNESIUM (SOPM)
Potassium magnesium sulphate is a specialised niche product produced by a very limited number of
producers worldwide. The product is both naturally occurring (langbeinite [K2Mg2(SO4)3] and schoenite
[K2Mg(SO4)2.6H2O]), and can be made by combining a variety of potassium and magnesium salts. As noted
in CRU’s report, production is currently limited to China, Germany (K+S) and the USA (Intrepid Potash and
Mosaic).
FERTECON estimates global demand for SOPM is around 2.53 million tonnes product. Demand has grown
vigorously in recent years, with a CAGR of 8.2% p.a. between 2005 and 2013. China has been the largest
contributor to growth: demand has increased five-fold over that time period from 297,000 t product to 1.49
million tonnes in 2013. Growth rates in other countries has been more modest.
As with the other potassic fertilizers discussed in this section, the main market shows a high level of
consolidation, with the top five nations consuming 86% of the product, and the top 15 countries almost 96%
of SOPM. Both at the current time and through the forecast period the top four markets are (in descending
order) China, the USA, Canada and Germany. It is significant that production is concentrated in China, the
USA (which also supplies Canada) and Germany. Only around 505,000 product tonnes, or 20% of total
demand, is traded.
Our forecast shows growth rates dropping significantly to around 1.7% p.a. to 2018, on the basis that we do
not expect the high levels of growth in China to continue. This view is reinforced by the fact that one of
major Chinese SOP producers, Luobupo Potash, which had announced a plan to develop capacity for
SOPM, has decided not to proceed with the project at the current time. In this regard our forecast is
significantly different to that of CRU. However it is also important to note that our assessment of demand in
China is currently higher than theirs, and as a consequence the net impact on the forecast in 2018 is
almost negligible. Elsewhere we see only very modest growth in the established markets.
Demand will grow to 2.75 million tonnes by 2018. The demand forecast is illustrated in the following
diagram:
1-12
MARKET OVERVIEW
SOPM GLOBAL DEMAND FORECAST TO 2025 (‘000 T PRODUCT)
‘000 t Product
3,000
ROW
2,500
Latin America
2,000
1,500
North America
1,000
Asia
500
Europe
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Base Data: FERTECON
AMMONIUM SULPHATE (AS)
Global demand for AS current stands at around 24 million tonnes. The product has two key features for the
fertilizer market. Firstly, its nutrient mix: it contains both nitrogen and sulphur and is therefore although it
contains less nitrogen at 21% than either urea (46% N) or ammonium nitrate (AN, 33% N) it is a popular
product in blends because of the additional sulphur. Secondly a significant proportion of its production is
involuntary – it is a by-product of the production of caprolactam (an intermediate in the production of
polyamide [nylon] 6), and also processes where ammonia is used to scrub SO2-containing waste gases,
such as in coke ovens. In terms of global capacity, only 22.6% is for synthetic AS, i.e. product produced by
first intent – 77.4% of global AS capacity is involuntary production.
The use of AS has grown significantly in recent years, partly down to increased availability through
involuntary production. The CAGR for global demand over the last five years has been 5.0% p.a., and for
the 13 years since 2000 is has averaged 2.5% p.a. Global demand has grown from 17.4 million tonnes in
2000 to 18.9 million tonnes in 2008 to 24.2 million tonnes in 2013. Key to this demand grow has been the
following:



The expansion of caprolactam capacity in China, driven by the growth in demand for the
production of nylon 6 fibre.
Increased production of oil seed rape (canola), with global production increasing from 36 million
tonnes in 2001 to around 71 million tonnes in 20135. One tonne of oil seed rape removes around
13.5kg of sulphur from the soil, and therefore AS is a favoured fertilizer as it supplies both N and
S.
Growth in the use of AS in NPK formulations as the issue of sulphur deficiency in soils has
become more widespread.
Looking forward, global demand growth will moderate. Demand to 2018 will average 2.1% p.a., taking
consumption to around 26.8 million tonnes, which will then grow to 27.7 million tonnes by 2025. The CAGR
for the period 2013 to 2025 is forecast at 1.1% p.a. The main reasons for the slow-down in demand growth
are:
5
USDA Foreign Agricultural Service, “World Rapeseed Products, Supply and Distribution”, October 2014.
1-13
MARKET OVERVIEW

China has overinvested in caprolactam capacity and as this is absorbed by the market, capacity in
other world areas will be decommissioned. Production of AS is more likely to reflect market growth
in caprolactam demand than significant swings associated with the commissioning of new worldscale capacity.
Growth in demand for oilseed rape is plateauing – for example, the USDA is forecasting lower
production volumes in 2014-15 than in 2013-14, something not seen for the last 10 years.
A less buoyant global economic outlook curtailing overall fertilizer demand, of which AS is part.


The following diagram illustrates the forecast:
AS GLOBAL DEMAND FORECAST TO 2025 (‘000 T PRODUCT)
‘000 t Product
30,000
ROW
25,000
Latin America
20,000
15,000
North America
10,000
Asia
5,000
Europe
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Base Data: FERTECON
SINGLE SUPERPHOSPHATE (SSP)
In volume terms SSP is the second largest-selling phosphate after diammonium phosphate (DAP).
However, as its nutrient content, measured as P2O5, is nominally between 18% and 22%, and can be as
low as 14%, there are a number of other phosphate products which supply higher levels of overall nutrient.
Current demand for SSP is just over 33 million tonnes product, or just under 5.4 million tonnes P 2O5.
SSP is a low analysis fertilizer6, and as a consequence tends to be used in the country of manufacture as it
would be an expensive way to ship phosphate around the world. It was the world’s first synthetic fertilizer,
having been commercialised in the 1850s by Lawes in the UK. As its early genesis might imply, the
production process is simple and requires only modest capital expenditure. As a consequence it continues
to be used in large volumes in countries where phosphate rock is locally available and both its simplicity of
manufacturing and comparative low cost are attractive. The main markets are in China, Brazil, India,
Australia and Egypt, which between them account for 85% of current global demand. The overall trend for
countries which are net importers of phosphate is for the volumes of SSP to decline in favour of high
analysis products. SSP volumes are expected to decline over the next 10 years by around 1.0 million
6
High and Low Analysis: Fertilizers are graded by their nutrient content of nitrogen (N), phosphate (P 2O5) and
potassium (K2O). A fertilizer containing 16% N, 16% P2O5 and 16% K2O will be referred to as 16-16-16. High
analysis fertilizers are those where the combined nutrient loading is considered to be high – there is no formal
cut-off point but most will be over 40% combined N, P and K. Similarly a low analysis fertilizer is one with a
comparatively low combined nutrient analysis, generally below 40%.
1-14
MARKET OVERVIEW
tonnes P2O5, which equates to around 6.1 million tonnes product. Of the main current consumers demand
in Brazil is expected to increase slightly. Although SSP, as an acidic phosphate, does not help neutralise
the acidic soils in the country the soils are so impoverished that it is a good local source of phosphate. SSP
demand in Brazil will continue to grow whilst new land is opened up for agriculture. However demand in
India and China is expected to fall as growth in NPK products substitutes SSP usage. The CAGR for the
period to 2018 is negative at -2.0% p.a. and through to 2025 is also negative at -1.5% p.a. Our forecast is
illustrated as follows:
SSP GLOBAL DEMAND FORECAST TO 2025 (‘000 T PRODUCT)
‘000 t Product
40,000
ROW
35,000
30,000
Latin America
25,000
20,000
North America
15,000
Asia
10,000
5,000
Europe
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Base Data: FERTECON
COMPARISON OF THE CRU AND FERTECON FORECASTS
KEY PRODUCT FORECASTS
In its report for Sirius Minerals, CRU provided a forecast of demand volumes for the main products in 2018
(Table 5.1, p.35). As noted in the introduction to this section, because of possible differences in regional
definitions we should be cautious about inferring too much from any minor differences at the regional level.
CRU has also provided their total volumes for the base year of 2013, so that where differences occur an
assessment can be made of whether the both companies expect the same growth trend but from different
starting points in 2013, or whether there is a difference in expected growth trends. A comparison of the
forecasts is as follows:
1-15
MARKET OVERVIEW
DIFFERENCES IN THE FORECAST TO 2018 – CRU VS FERTECON
Million Tonne Product
MOP
SOP
SOPM
Kieserite
AS
SSP
CRU 2013
54.0
5.0
1.8
1.2
23.1
30.0
CRU 2018
71.3
5.6
2.0
1.5
25.5
32.6
FERTECON 2013
53.2
4.5
2.5
24.2
33.7
FERTECON 2018
69.9
6.7
2.8
26.8
31.5
Difference 2013 – Vol
Total
-0.8
-0.5
0.8
1.0
3.7
-1.5%
-10.0%
30.9%
4.3%
10.9%
-1.4
1.1
0.8
1.3
-1.1
Difference 2018 %
-1.9%
16.5%
27.3%
4.7%
-3.4%
CRU CAGR %
5.7%
2.4%
2.7%
2.0%
1.7%
FERTECON CAGR %
5.6%
8.2%
1.7%
2.1%
-1.3%
-0.82
0.55
0.17
-
-
-
-0.09
S
-
0.19
0.17
-
0.30
-0.14
0.52
Mg
-
-
0.14
-
-
-
0.14
Difference 2013 %
Difference 2018 - Vol
4.4%
Difference in Nutrient Demand in 2018
K 2O
We have also calculated the difference in total nutrient demand for K2O, sulphur and magnesium as the key
nutrients supplied by polyhalite.
Our conclusions from this analysis are as follows:

There is no material difference in the forecast for MOP. The difference of under 2% of expected
volumes in 2018 is likely to be within the margin of error for any forecast, and the expected market
growth rates anticipated by both companies is very similar.

At face value there is a substantial difference between the two assessments of SOP. In practice
this comes down to a difference in the two companies’ analysis of the China market. FERTECON has
forecast global demand in 2018 to be 1.1 million tonnes product higher than CRU. FERTECON’s
forecast for China in 2018 is 3.7 million tonnes, whereas CRU’s forecast is 2.8 million tonnes, a
difference of 0.9 million tonnes. For the rest of the world therefore the difference in demand
expectations is around 200,000 tonnes, or 3.9% of CRU’s total forecast. Because FERTECON’s
demand assessment is larger than CRU’s, it has no detrimental significance for CRU’s overall analysis
– it merely means that in FERTECON’s opinion the potential market for SOP that might be substituted
by polyhalite is a little larger than that suggested by CRU.

There is also a substantial difference between the two assessments of the SOPM market. As
with SOP however, the difference is entirely attributable to a difference of opinion on the China market.
CRU has assessed the China market in 2018 at 500,000 tonnes, whereas FERTECON’s assessment
is for 1.5 million tonnes. This however does imply that FERTECON’s assessment of the market for the
rest of the world is marginally lower than CRU’s, i.e. excluding China York Potash would have a
marginally smaller market to market its polyhalite to. The difference excluding China is around 300,000
tonnes. Because of the small size of the SOPM market 300,000 t is clearly a significant difference of
opinion. However, in the context of the available market accessible to York Potash the difference is
much more marginal. In terms of the overall analysis provided by CRU we do not believe it to be
significant because FERTECON’s assessment of the overall global market is larger. However it should
be noted that if FERTECON’s analysis of the rest of the world is robust, and CRU’s assessment of
China is closer to reality, then there is a small downside risk to the overall assessment.
1-16
MARKET OVERVIEW

Kieserite: FERTECON does not routinely track the production and use of Kieserite, and therefore does
not have a reliable data set with which to compare CRU’s forecast. However based on the research we
have completed in the course of this review we would consider their outlook expectations to be robust.

There is no significant difference in the two outlooks for ammonium sulphate. The expected
market growth rates are very similar. There is a 1.3 million tonnes (or 4.7%) difference in the
assessment, but this is because FERTECON believes the market in 2013 was 1.0 million tonnes larger
than CRU. As noted for both SOP and SOPM, this will not materially affect the conclusions arrived at
by CRU, as it means that in FERTECON’s opinion the market which York Potash can target might be
slightly larger than assessed by CRU.

Single Superphosphate: There is a clear and substantive difference is the assessment of SSP. CRU
anticipates overall market growth, FERTECON believes that the market will contract.
In terms of the total market size, SSP is difficult to assess. FERTECON looks at the overall nutrient
demand in terms of P2O5. SSP is typically sold with an analysis of between 18% P2O5 and 20% P2O5,
but the range in product available is wider than that – much of the product produced in China for
example is between 14% and 15% P2O5. Therefore the nutrient conversion factors used can have a
major impact on the assessment of product tonnes produced. Because of this we would not read too
much into the 3.7 million tonnes difference in assessment between CRU and FERTECON in 2013, nor
the 1.1 million tonnes difference in 2018. However the difference in direction of travel is significant,
especially if the future beyond the planned mine start-up for York Potash in 2018 is considered.
FERTECON would expect demand for the product to be at best stable if not declining, whereas the
implication behind CRU’s 2018 forecast is that they would expect volumes to grow. There is potential
downside for York Potash in FERTECON assessment of SSP versus CRU’s analysis.
That having been said, the significance of the downside should not be overstated. Sirius has stated
that the key target market for polyhalite from the proposed project is in the blends and compounds
market for NPKs, NKs and PKs. SSP is used in blends, but because it is not compatible with either
urea or calcium ammonium nitrate, and only compatible with AS under special circumstances, it is not
the phosphate of choice is blends or compounds. To be made compatible with these sources of
nitrogen the SSP needs to be partially ammoniated. Accordingly mono ammonium phosphate (MAP) is
increasingly used in blends and compounds. A key component of our expectation of a decline in SSP
demand is this long term substitution trend to the use of compound, complex or blended fertilizers,
which will selectively boost demand for MAP (and phosphoric acid) at the expense of SSP. So whilst
there is clearly an important difference of opinion in the outlook for SSP between CRU and
FERTECON, the impact of the difference on the potential for York Potash to market polyhalite,
especially to its target markets, is likely to be modest.

In terms on overall K2O demand, the net difference between the two forecasts is only 90,000 tonnes in
2018, equivalent to 0.2% of the market. Whilst there might be some differences therefore in the mix of
products sold, there is no substantive difference in the analysis of overall nutrient demand.

FERTECON’s assessment of the overall sulphate availability from the products reviewed is 520,000
tonnes higher than CRU’s assessment or 4.4% higher. This should not materially affect the
conclusions arrived at by CRU.

Because FERTECON does not routinely assess the kieserite market the fact that it expects more
magnesium to be supplied through SOPM than CRU is not meaningful in terms of overall magnesium
demand.
Our overall conclusion from this review of these key products is that, whilst there are differences between
CRU’s and FERTECON’s assessment of the market in 2018, the differences are not significant, and
CRU’s forecast for these products can safely be used to illuminate the rest of the analysis.
1-17
MARKET OVERVIEW
NPK FORECASTS
CRU provided a forecast for NPKs in Table 2.1 of the report. Given that Sirius has confirmed in meetings
that the NPK blend and compound market is a key target market for polyhalite both because of its
importance in MOP substitution and that most standard and granular SOP is sold to blenders and
compounders, this forecast is clearly important in underpinning various aspects of the report.
CRU noted that there are distinct types of NPKs dependent on the method of manufacturing. These are:



Compound: A fertilizer that has a declarable content of at least two of the nutrients nitrogen,
phosphorus and potassium, obtained chemically or by blending.
Complex: A compound fertilizer where all the nutrients have undergone chemical interaction in the
manufacturing process so that each pellet contains nutrients in the proportion of the overall
formula of the fertilizer sold.
Bulk blend: A dry blend of different fertilizers to give a mixture where the overall composition
supplies nutrients in the proportions of the overall formula, but where individual pellets will be of
the constituent fertilizers used in the blend, for example KCl or MAP.
The source of K2O for all NPKs will generally be MOP where the presence of chloride ions is not an issue,
and SOP where a chloride-free product is required. SOPM might be used if magnesium was needed as a
secondary nutrient in the formulation.
IFA collates consumption data on complex fertilizers. Its data is normally only released a number of years
after the year of assessment, but it is the only data set which routinely assesses the market for complex
fertilizers, and therefore has the benefits of consistency and longevity. Organisations such as CRU and
FERTECON will use this data and augment it with data published from other sources. IFA do not report
data in product tonnes, only in tonnes nutrient. FERTECON uses a default factors to convert that data into
product tonnes, for example NPKs are assumed to have the composition 15-15-15, or PKs 0-25-25. We
believe CRU takes a similar approach.
There is no similar data set for bulk blends. Bulk blends can be made by major fertilizer wholesalers and
distributors. Blends can also (literally) be made by individual farmers using a portable cement mixer,
although they might not deserve the prefix “bulk”. There is also specialised spreading equipment which
allows farmers to blend in situ, i.e. have tanks on the spreader for sources of nitrogen, phosphorus and
potassium and then apply fertilizer at varying rates based on the differing requirement of the soil over the
field. The consequence of this is that there is no generally accepted views on the overall market for
blends. An analysis can be made based on the probable use of inputs (KCl, MAP etc.) but in most cases
this in not much more than informed guesswork. The range of possible blends is almost limitless. The
Association of American Plant Food Control Officials (AAPFCO) compiles a report on the use of fertilizer in
the USA in which it lists the top 100 formulations for multi-nutrient products. The annual volumes of the
lowest selling products on the list (i.e. products 95 to 100) are typically around 12,000 tonnes. The report
then notes that the total number of grades sold exceeds 19,000, i.e. that there are over 18,900 other blend
formulations sold in the USA where the annual volumes sold are less than 12,000 tonnes each.
CRU has presented a forecast for global NPKs which it has broken down into compounds and blends.
There is no supporting information as to whether in this instance NPK means only NPKs or whether it is
being used generically to include NPs, NKs and PKs as well as NPKs. Although no information is given as
to whether in compounds they mean just complex fertilizers or both complex and compounds, we believe
the data to be based on IFA’s and therefore to be complex products only. FERTECON breaks down the
complex fertilizer market based on IFA’s data and other sources, into NPKs, NPs, NKs and PKs. A
comparison of the data presented by CRU and FERTECON’s data is as follows:
1-18
MARKET OVERVIEW
COMPARISON OF NPK DATA AND FORECASTS
‘000 tonnes Product
2012
2013
2014
2015
2016
2017
CAGR %
World Total
143,000
153,398
154,604
155,835
157,548
158,984
2.1%
Compounds
73,700
82,917
82,917
82,917
83,373
83,524
2.5%
Blends
69,300
70,481
71,686
72,918
74,176
75,460
1.7%
IFA:
65,317
CRU:
FERTECON:
World Total
62,337
66,436
67,239
70,377
72,369
73,109
3.2%
NPKs
44,367
46,910
48,710
51,630
53,504
54,118
4.1%
NPs
12,192
13,630
12,515
12,612
12,608
12,608
0.7%
PKs
3,918
3,999
4,079
4,161
4,244
4,329
2.0%
NKs
1,860
1,897
1,935
1,974
2,013
2,054
2.0%
-11,363
-16,481
-15,678
-12,540
-11,004
-10,415
Difference
FERTECON - CRU
IFA - CRU
-8,383
FERTECON - IFA
-2,980
Data: CRU, IFA, FERTECON
It is possible (even probable) that the difference between the totals is down to differing conversion factors
used by CRU and FERTECON. CRU’s forecast for “Compounds” shows a CAGR of 2.5% p.a.;
FERTECON is slightly more bullish in its outlook averaging 3.2% p.a. There are a couple of key points to
raise with the data. Firstly, it would appear that CRU’s data includes NP grades, which will not be a target
for polyhalite. This suggests that the overall total target market for compounds will be at least 12.0 million
tonnes lower than the total implied in the CRU report. Secondly the volumes reported for NKs are almost
exclusively for potassium nitrate, which will not be a target market either, and will reduce the market size by
a further 2.0 million tonnes. Therefore using CRUs data the target market for polyhalite for compounds is
more realistically set at 68.5 million tonnes in 2014 rather than the 82.9 million tonnes noted. FERTECON’s
view is that the total available market for polyhalite in NPK and PK complex fertilizers is currently
(2014) around 53 million tonnes product, and will be around 59 million tonnes by 2018. It is however
fair to note that this will not have impacted upon the conclusions arrived at by CRU, because CRU’s
demand model is based on inputs such as MOP and SOP, not the NPK outputs. This is a core difference
between the assessments carried out by CRU and FERTECON.
It is very difficult to formally corroborate the volume assessed by CRU for blends. FERTECON does keep a
plant list for NPK capacity. Given the modest amount of capital required for investments in bulk blends this
cannot be considered as comprehensive – for many new blending facilities there will be no announcements
and therefore they will go unrecorded. FERTECON’s NPK plant list currently records around 141 million
tonnes of capacity, of which 64 million tonnes is for complex NPKs, and the balance of 77 million tonnes is
for compounds and blends. What we can say of the 77 million tonne capacity is that it will certainly
understate overall capacity, but by how much we don’t know.
FERTECON’s data suggests the total market size for K2O in all fertilizers in 2012 was 29.2 million tonnes.
Of this IFA suggests 7.9 million tonnes was used in complex fertilizers, leaving a balance of 21.3 million
tonnes K2O. Assuming an average K2O content of 15% CRU’s blend forecast suggests a further 10.4
million tonnes is used in bulk blends, meaning that around 11.0 million tonnes K2O, or just over 18 million
tonnes in the form of KCl, would be spread directly on fields. Put another way, when the volume of K2O
used in complex fertilizers is subtracted, around half the balance goes into bulk blends, and half is applied
1-19
MARKET OVERVIEW
directly. This would seem, prima facie, to be reasonable, but we would stress that there is no corroborative
evidence for it – it is an informed opinion but cannot be verified.
TOTAL K2O FORECASTS
FERTECON’s forecast suggests demand for K2O will increase at a CAGR of 6% p.a. to 2018, and of 3.9%
p.a. between 2013 and 2015. FERTECON’s overall K2O forecast is illustrated in the diagram below. CRU’s
forecast for MOP, SOP and SOPM to 2018 has a CAGR of 5.5% p.a. for total K2O.The fact that
FERTECON has a marginally higher growth rate suggests that there is more up-side opportunity than
downside risk in the forecasts used in CRU’s study for Sirius.
FORECAST FOR TOTAL K2O DEMAND IN FERTILIZERS TO 2025
‘000 t Product
50,000
45,000
ROW
40,000
35,000
Latin America
30,000
25,000
North America
20,000
15,000
Asia
10,000
Europe
5,000
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Data: FERTECON
The market for K2O consumption is highly concentrated. In 2013, 80% of K2O consumption for fertilizers
occurred in just 14 countries, and the top 5 consumers accounted for 64%. By 2025 80% of consumption of
K2O is forecast to occur in only 12 countries, of which the top five will account for 68%. China dominates,
with a share of 20% rising to 22%. In 2013 four European countries, Belarus, France, Germany and Poland
were in the top 14 countries; there are three in 2025 (Belarus, Poland and France). Of these only Poland
and France do not produce potash. The significance of this is that to sell polyhalite from the UK most of the
market will be outside Europe, which accounts for 10% of the global market in 2013, declining to 8% by
2025.
MARKET OVERVIEW CONCLUSIONS
There are a number of differences and many similarities in the forecasts as produced by CRU and
FERTECON. As an overall observation we would not expect that the differences between CRU’s and
FERTECON’s analysis of the market would make any significant difference to the conclusions arrived at by
CRU in terms of their analysis of the various competing products. Where there are differences, with the
exception of SSP, FERTECON’s assessment is marginally more bullish and therefore only suggests a
slightly larger market available for potential product substitution.
1-20
MARKET OVERVIEW
The key area of uncertainty relates to the market analysis for NPK blends. FERTECON believes it is safe to
suggest that the market for complex NPK and PK fertilizers is currently around 53 million tonnes and will
grow to 59 million tonnes by 2018. This implies that the complex market will use around 8.8 million tonnes
K2O by 2018. Our forecast for total K2O demand in 2018 is 39 million tonnes, i.e. complex fertilizer demand
will account for 22% of overall usage. This also means that 78% of demand will be for blends and for
product applied directly. What the relative proportion will be between that applied directly and that going
into bulk blends we don't know. If CRU’s apparent 50:50 split is correct in terms of order of magnitude, then
it would imply around 15 million tonnes K2O being used in bulk blends and simple compounds (dry mix
followed by steam granulation for example), or a market size of around 100 million tonnes product. There is
however no corroborative data to support this view – it could be more, or it could be less.
The key conclusions from this market overview review are therefore as follows:

Although there are differences between CRU’s and FERTECON’s market analysis and outlook, the
differences are not sufficiently substantive for the major fertilizer types reviewed, excluding NPKs, to
imply that CRU’s subsequent use of them to estimate the market size for polyhalite is fundamentally
flawed. CRU has described their forecasts as generally “conservative”, which FERTECON would agree
with.

With the exception of SSP, most of the important differences in the analysis of the market relate to
China. The country is hard to assess - the political pressures associated with a centrally planned
economy mean that the data is sometimes unreliable. It is appropriate to note however that CRU
retains two full-time fertilizer analysts in China and therefore tit would be reasonable to expect that their
views on the country are reasonably well grounded.

There is a significant difference of opinion regarding the SSP market. CRU expects it to grow,
FERTECON expects it to contract. The significance of this difference is mitigated by the fact that SSP
is of diminishing importance in the NPK blend market, because of its compatibility issues with many of
the nitrogen products used in the blends, and because it is only generally available in countries which
have local phosphate rock production. Assuming the blended market is a key target for York Potash,
then whilst this difference should be noted, it is probably of limited significance in terms of the overall
market for polyhalite.

CRU’s assessment of the NPK market size is not possible to properly validate. Their assessment of the
size of compounds is higher than either IFA or FERTECON’s assessment for complex products, but
this is because they are also including granulated products used by steam granulation etc. Their
analysis is, we believe, based on published plant capacity by the IFDC 7 and assuming a capacity
utilisation of around 70%. There is little evidence, either for or against, to support such a utilisation rate.
However it is probably reasonable to state that whilst the estimate cannot be properly validated, it is
likely to be of the correct order of magnitude, and therefore for the purposes of the assessment is
robust enough to provide a reasonable analysis.
Whilst it is completely impossible to verify the volumes of bulk blends forecast by CRU, based on
known capacities for simple compounds and blends and anecdotal evidence of the use of KCl we think
that the volumes forecast for blends by CRU are more likely to understate reality than overstate reality.
There is no formal data to back up this assertion and therefore it is an informed opinion, with the risks
that such a statement implies. Nevertheless, as we would expect that if the market for blends forecast
by CRU is incorrect it is more likely to be larger than they state than smaller, the implication is that the
forecast can be used as basis for assessing the possible market for polyhalite, albeit acknowledging
that there are some risks associated in so doing.

7
It is important to note that the size of the market for K2O into the NPK, NK and PK markets is based on
assumptions of average grades. Key to the ability of polyhalite to substitute other forms of K2O is its
ability to be used in formulations, and the mix of formulations produced and sold. In the next section we
IFDC – International Fertilizer Development Centre, based in Muscle Shoals, AL, USA.
1-21
MARKET OVERVIEW
will analyse its ability to be used in formulations, to assess the robustness of CRU’s modelled
approach to this issue.
1-22
MARKET OVERVIEW
Methodology
INTRODUCTION
CRU’s methodology “has looked at the substitution opportunity for polyhalite into a number of existing
fertilizer markets. This has been done based on the nutrient value, which in turn is determined by detailed
market pricing data.”8 A key assumption is economic, i.e. that polyhalite will be used if it is fully competitive
with other raw materials and provides the user with a financial benefit. CRU has assessed the costs of
production of the competing materials and from this has been able to calculate the price at which polyhalite
will be competitive.
Sirius has consistently noted that the compound and bulk blend markets are an important target. As part of
CRUs methodology they created a blending model to calculate the lowest cost combination of raw
materials to meet the specifications of various NPKs. The model ran 28 different combinations sold across
the UK, Europe and other global markets.
FERTECON would not argue with the premise that if there is a lower cost route to making a product it will
be seriously considered and may well be implemented. However in the formulation of NPK, NK and PK
products there are certain physical limits to what is possible based on the nutrient content of the materials
used. At its most simple, as polyhalite contains 14% K2O, if it were the only source of K2O it would not be
possible to make many formulations containing much more than 10% K2O as there needs to be other
ingredients in the formulation. There is a certain amount of published data available on the actual
consumption of different formulations in specific countries. For example, as already noted in the Market
Overview section of this report the AAPFCO provides a review of the multinutrient market in the USA; the
Fertilizer Association of India also publishes consumption data by grade for NPKs, and data is available for
countries such as Ireland and Thailand as well. As a means of auditing CRU’s assumptions and
establishing where the practical limits on the use of polyhalite might be, we have looked at all the grades
listed in these reports and formulated them based on the simple premise of maximising the use of
polyhalite. This might not be the most cost effective formulation, but it will establish the upper limits of how
much of the K2O currently used in the complex and blend markets could be substituted by polyhalite
assuming it was economic to do so. The next sections detail our findings.
AUDIT METHODOLOGY
To create a model for the maximum volumes of polyhalite that could be used we used the following
assumptions:




8
Where possible we used solid fertilizers in the formulations to ensure it could be produced as a blend
or a compound. Some high analysis formulations can only be made as complex fertilizers using
phosphoric acid and ammonia.
We formulated with the highest nutrient-containing solid N and P2O5 products, i.e. urea (46% N) and
MAP (52% P2O5 + 11% N). Where the formulation was a PK product the P2O5 source was TSP (46%
P2O5).
When the N and P parts of the grade were balanced with the least physical product possible, the K2O
was supplied using polyhalite (14% K2O) by first intent, supplemented with KCl (60% K2O) or
potassium sulphate for chloride-free products (50% K2O) where needed.
The materials available for use in our assessment are:
CRU “Polyhalite Market Study, April 2014”, p.2
2-23
METHODOLOGY
N
Urea (46% N)
Ammonium Nitrate (33%)
Ammonium sulphate (21%)
Ammonia (82%)

P
K
MAP (52% P2O5)
MOP (60% K2O)
DAP (46%)
SOP (50%)
TSP (46%)
Potassium nitrate (44%)
Phosphoric acid (54%)
Polyhalite (14%)
Polyphosphoric acid (68%)
For each country assessed a list of grades and consumption volumes was available. By formulating
each grade using the method described a total maximum volume for polyhalite could be modelled.
A total of 269 different formulations were assessed, comprising 206 NPK, 47 NK and 16 PK products.
The list of formulations is as follows:

NPK, NK AND PK FORMULATIONS ASSESSED FOR POLYHALITE SUBSTITUTION
Formulations Assessed
1.
NPK Formulations – Ranked by N Content
1
1-6-4
53
8-5.2-16.6
105
13-10-21
157
20-10-10
2
2-1-6
54
8-5-18+B
106
13-13-13
158
20-10-12
3
2-6-12
55
8-5-20+B+S
107
13-13-21
159
20-27-5
4
2-6-35
56
8.1-6.5-19.6
108
14-4-14
160
21-2.2-10
5
2.5-2.5-15
57
8.5-8.9-16.8
109
14-7-14
161
21-2.5-10
6
2.5-2.6-23.2
58
8.5-8-23
110
14-8-24
162
21-3-3
7
3-9-9
59
9-9-20
111
14-14-14
163
21-5-10
8
3-10-30
60
9-10-20
112
14-14-21
164
21-7-3
9
3-15-30
61
9-18-9
113
14-28-14
165
21-7-14
10
3-18-18
62
9-23-30
114
14-35-14
166
21-7-18
11
4-6-4
63
9-24-3
115
15-2-15
167
22-1.7-11.6
12
4-10-10
64
9-25-25
116
15-2-18
168
22-2.5-5
13
4.5-10-20
65
9.5-6.7-25
117
15-3-20
169
22-3-12
14
5-5-10
66
10-3-18+B
118
15-4-20
170
22-6-2
15
5-6-35
67
10-4-17.8
119
15-5-20
171
22-6-12-5
16
5-10-10
68
10-5-25
120
15-7-6
172
22-21-17
17
5-10-20
69
10-6-20
121
15-7-15
173
23-2-6
18
5-10-30
70
10-6-22
122
15-7-18
174
23-2.5-10
19
5-10-21.5
71
10-7-23
123
15-9-20
175
24-2-4
20
5-15-15
72
10-7-25
124
15-10-10
176
24-2.2-4.4
21
5-15-20
73
10-8-21
125
15-15-15
177
24-2.2-4.5
22
5-20-20
74
10-10-10
126
15-15-15+Zn
178
24-2.2-9
23
5-25-30
75
10-10-20
127
15-15-15-9
179
24-2.5-10
24
5.6-5-15.6
76
10-15-15
128
15-25-15
180
24-4-2
25
6-4.3-5.8
77
10.15.25
129
15-30-15
181
24-5-5
26
6-6-17
78
10-20-10
130
16-4-8
182
24-5-11
27
6-6-18
79
10-20-20
131
16-4-20
183
25-2.2-4.2
28
6-10-18+B
80
10-25-20
132
16-5-20
184
25-2.2-4.2+Na+Se
29
6-12-18
81
10-26-26
133
16-7-13
185
25-2.2-4.5
30
6-15-40
82
11-8-20
134
16-7-14
186
25-2.5-5
31
6-24-6
83
11-8-32
135
16-8-8
187
25-5-5
2-24
METHODOLOGY
32
6-24-24
84
12-4-24
136
16-8-20
188
25-5-5-5
33
6-26-30
85
12-4.8-15
137
16-11-14
189
25-7-7
34
7-1-1
86
12-5-25
138
16-16-8
190
26-2.5-5
35
7-6-17
87
12-6-17
139
16-16-16
191
26-3-12
36
7-7-32
88
12-6-22
140
17-2-3
192
26-14-7
37
7-8-1
89
12-8-20
141
17-17-17
193
27-1.7-3.3
38
7-17-3
90
12-11-18
142
18-2.5-14
194
27-2.2-4.2
39
7-18-36
91
12-12-12
143
18-4-10
195
27-2.5-5
40
7-21-7
92
12-12-17
144
18-4-12
196
27-4-4
41
7-24-4
93
12.20.12
145
18-6-5
197
27-5-5
42
7.3-7.3-14.6
94
12-15-15
146
18-6-12
198
27-6-6
43
8-8-8
95
12-24-12
147
18-9-9
199
27-10-10
44
8-8-22
96
12-30-12
148
18-24-12
200
28-1-4
45
8-10-20
97
12-32-16
149
18-24-12 +Zn
201
28-2-3
46
8-12-24
98
12-40-1
150
19-2-4
202
28-3-3
47
8-19-3
99
13-2.2-4.2
151
19-9-19
203
29-2-4
48
8-20-3
100
13-2.5-19
152
19-19-19
204
29-3-4
49
8-20-5
101
13-4-14+B
153
20-4-8
205
30-3-4
50
8-24-24
102
13-6-20
154
20-4-10
206
30-15-15
51
8-24-24
103
13-6-27
155
20-5-10
52
8-24-8
104
13-10-20
156
20-8-20
2. NK Formulations – Ranked by N Content
1
4-0-8
13
15-0-14
25
2.7-0-33.5
37
25-0-15
2
8-0-8
14
15-0-15
26
20-0-10
38
25-0-3
3
9-0-16.6
15
15-0-18
27
20-0-2
39
25-0-5
4
10-0-10
16
15-0-21
28
20-0-20
40
26-0-3
5
10-0-13
17
16-0-16
29
20-0-4
41
26-0-5
6
10-0-27
18
16-0-8
30
20-0-5
42
27-0-5
7
12-0-11
19
17-0-17
31
21-0-21
43
28-0-3
8
12-0-22
20
17-0-28
32
22-0-2
44
28-0-5
9
13.5-0-12.5
21
17-0-3
33
23-0-10
45
30-0-2
10
14-0-40
22
18-0-15
34
23-0-12.5
46
30-0-4
11
14-0-44
23
19-0-15
35
24-0-11
47
32-0-10
12
15-0-12
24
19-0-6
36
25-0-10
3. PK Formulations – Ranked by P2O5 Content

1
0-4.4-20.7
5
0-6.1-15
9
0-8-5
13
0-18-36
2
0-4.5-16
6
0-6.5-8.1
10
0-8.8-25
14
0-21-32
3
0-5-8
7
0-7-30
11
0-10-20
15
0-23-30
4
0-6-4
8
0-7-7
12
0-12-6
16
0-26-26
Data (grade, annual consumption) was assessed for the USA, Ireland, Thailand, India, Turkey and
Kenya (partial data only). Of these the USA is predominantly a blends market, Turkey and India
predominantly a complex market, and Thailand and Ireland are mixed.
It should be noted that whilst this methodology will determine an upper limit, it does not take into account
certain current features of the market. For example the assessment rarely used ammonium sulphate, as it
2-25
METHODOLOGY
is a low analysis provider of N, and the sulphur it supplies will be substituted in part by the sulphur in
polyhalite. In practice AS is commonly used and in many parts of the world, because it is produced
involuntarily, producers will ensure it is sold.
The use of such a model also gave some insights into the potential use of polyhalite in blends and
compounds. The key insights gained are as follows:

Polyhalite is relatively versatile. We were able to incorporate some in almost all of the formulations
assessed.

The higher the total analysis (nutrient content) of the grade, the lower the volume of polyhalite that
could be used. In general for grades where the total nutrient content was above 40%, less than 30% of
the K2O in the grade could be supplied by polyhalite. However for products with a combined analysis of
less than 30% all the K2O could be supplied by polyhalite. The relationship is as follows:
RELATIONSHIP BETWEEN TOTAL NUTRIENT CONTENT AND ABILITY TO FORMULATE WITH
POLYHALITE
Percent
Total NPK Analysis
Average Percent of K2O Supplied by Polyhalite
50 – 60
10.7
40 – 50
27.4
30 – 40
76.7
< 30
100.0

Based on the relationship between the total NPK analysis and the proportion that can be supplied from
polyhalite, it also follows that the market for complex NPKs, which tend to be high analysis, will be less
attractive than the market for blends, which tends to supply most of the lower analysis products.

Somewhat unexpectedly, a demand for a specific level of sulphur, if above that naturally supplied by
the polyhalite content, would severely restrict the volumes of polyhalite that could be used. This is
because the additional sulphur is generally supplied by ammonium sulphate as the product with the
highest analysis of sulphur. However any inclusion of AS reduces the N content, and therefore to meet
the required N-content more AS than (e.g.) urea needs to be used, and therefore the available volume
for K2O was restricted. So for example 15-15-15 can be formulated with 267kg of polyhalite per tonne
of fertilizer, whereas to make 15-15-15-9 (i.e. with 9% sulphur) the amount of polyhalite in the
formulation reduces to 49kg per tonne of fertilizer produced. It should also be noted that this is in line
with the comment that the higher the overall analysis, in general the lower the volume of polyhalite that
can be used.
AUDIT RESULTS
The prime objective of the audit was to try to establish what the practical limits might be for the proportion
of total K2O consumed in complex, compound and blended products that could be supplied by polyhalite.
Clearly there is no exact answer to this question, but by analysing the available data from actual demand
we expect to be able to define a reasonable range of the total K2O, which would then enable a range for the
total potential market for polyhalite in blends, compounds and complex fertilizers.
The countries for which data is available for provide an interesting mix:


2-26
India is one on the major markets for complex NPKs
The USA is possibly the largest market for blended NPKs outside China.
METHODOLOGY


Thailand is reasonably representative of a large Asian market taking a mix of blends and
compounds.
Ireland is a good example of a mixed agriculture where pasture is important. Pasture typically uses
blends with medium to low analysis where polyhalite use can be maximised, and therefore will be
amongst the optimal markets for York Potash.
USA
The Association of American Plant Food Control Officials (AAPFCO) produce a report on the commercial
fertilizer market in the USA. The most recent report is for 2012, which includes data for 2010 and 2011. The
report details an analysis of the market for multinutrient fertilizers in the USA, including the total market
size, and the top 100 grades by volume. The report also includes a total for K2O usage in multinutrient
grades. From this we are able to create formulation for all the top grades maximizing polyhalite usage. We
looked at two reports, the 2012 edition and the 2010 edition, therefore obtaining results for four years. A
summary of the results is as follows:
ANALYSIS OF THE POTENTIAL FOR POLYHALITE IN MULTINUTRIENT FERTILIZERS IN THE USA
‘000 tonnes
Year
2007
2008
2010
2011
Total Volume
11,112
9,049
9,021
9,337
Total No. Grades
17,788
17,412
19,535
19,037
2,611
2,384
2,077
2,200
83
83
78
79
K2O
387
338
327
330
K2O from Polyhalite
123
116
95
99
K2O from KCl or Other
263
222
232
230
% K2O Polyhalite
31.9%
34.3%
29.0%
30.1%
% K2O KCl or Other
68.1%
65.7%
71.0%
69.9%
1,261
969
1,035
979
K2O from Polyhalite
416
341
310
305
845
628
725
674
% K2O Polyhalite
33.0%
35.1%
30.0%
31.1%
% K2O KCl or Other
67.0%
64.9%
70.0%
68.9%
Volume Polyhalite
2,975
2,433
2,217
2,177
Volume KCl or Other
1,408
1,047
1,208
1,124
Volume Top Grades
Total Grades
Top Grade Analysis
Total Multinutrient Analysis
Total K2O
Base Data: AAPFCO – Commercial Fertilizers 2008, and Commercial Fertilizers 2011
Because we do not have full details on all grades produced, for the volumes outside the top 100 we have
extrapolated the use of polyhalite based on the proportions of use for the top volume grades.
The analysis shows that in the USA between 30% and 35% of all K2O for blends and compounds could be
theoretically be supplied by polyhalite. In our opinion the USA should be indicative of global demand for
blends as a whole – it has a wide variety of agricultures from pasture to cereals to tobacco and fruit and
vegetables. The average theoretical loading of polyhalite across all products was 322kg per tonne of
fertilizer produced.
2-27
METHODOLOGY
INDIA
The Fertilizer Association of India (FAI) produces an annual statistical yearbook where it records Indian
production of NP and NPK fertilizers. The recorded production is all for complex fertilizers, and all the
grades are high analysis, with the percentage of N, P and K in the formulation ranging from 45% to 62%.
The FAI notes the production of a total of 9 grades, with total production volumes in 2012-13 of just over
3.0 million tonnes. With such a high analysis it is unsurprising to note that the ability to substitute polyhalite
is severely constricted – India had the lowest level of potential substitution of the markets looked at. A
summary of the analysis is as follows:
ANALYSIS OF THE POTENTIAL FOR POLYHALITE IN MULTINUTRIENT FERTILIZERS IN INDIA
‘000 tonnes
Year
2010-11
2011-12
2012-13
5,510
4,315
3,067
5
9
6
1,157
844
639
107
95
65
1,049
750
574
% K2O Polyhalite
9.3%
11.2%
10.2%
90.7%
88.8%
89.8%
766
676
466
Total Volume
Total No. Grades Produced
Total K2O
K2O from Polyhalite
% K2O KCl or Other
Volume Polyhalite
Volume KCl or Other
1,749
1,249
956
% Formulations using Polyhalite
100%
100%
100%
Base Data: FAI – Fertilizer Statistics 2012-13
India provides a good illustration of the practical difficulties of incorporating a low K2O-containing product
such as polyhalite into high analysis NPK products. It was possible to incorporate some polyhalite into all
the products, but the overall volumes were small – the average over the 9 formulations was 152 kg per
tonne (17.4%). This suggests that for York Potash to succeed they will need to focus more on the blended
market, where the overall grades tend to be lower analysis and there is more scope for higher volumes.
IRELAND
The Department of Agriculture, Food and the Marine in Ireland publishes statistics on Compound Fertilizer
Sales in Ireland. The most recent data, covering the year from October 2012 to September 2013, lists 126
products sold, of which 106 were NPKs, NKs or PKs. Whether all the grades sold were formally
compounds, or whether “compound” is being used in a generic sense to imply multinutrient fertilizers is not
possible to tell. The average analysis of the grades sold is 32.7%, with a range of 14.6% to 46%.
Ireland is also interesting in that the number of NK fertilizers sold is higher than elsewhere – 17 grades out
of the 106 noted. This is significant because, even taking into account high N content and an average K2O
content in the 17 grades of 12.1%, a significant proportion of the K2O is able to be provided by polyhalite.
We believe that the NK grades are especially used on pasture, and therefore the mix in Ireland would be
indicative for York Potash of possible markets in New Zealand, the north-western USA and western
Canada. Certainly the number of NK grades has contributed, along with a comparatively low average K2O
content of 14% across all grades, to Ireland having the highest level of theoretical potential substitution
amongst the countries we have data for. Half of the K2O supplied in the grades purchased in Ireland in
2012-13 could be supplied in the form of polyhalite. The summary of the analysis is as follows:
2-28
METHODOLOGY
ANALYSIS OF THE POTENTIAL FOR POLYHALITE IN MULTINUTRIENT FERTILIZERS IN IRELAND
‘000 tonnes
Year
2012-13
Total Volume
830
No.
106
Total
Grades
Total K2O
89
K2O from Polyhalite
45
44
% K2O Polyhalite
50.1%
% K2O KCl or Other
49.9%
Volume Polyhalite
319
Volume KCl or Other
74
100%
Data Source: Dept. for Agriculture, Food & the Marine, Ireland -
The average polyhalite loading per tonne of fertilizer achievable in Ireland was 384 kg per tonne, which is
the highest level achieved in any of the countries for which we have good data.
THAILAND
The Thailand Department of Customs publishes data by grade for multinutrient fertilizer imports in
Thailand. A total of 83 products are listed in 2012, of which 53 contain K2O – excluding imports of straight
MOP and SOP which are also listed. The average K2O content is relatively high at 18%, and the average
nutrient content of the K2O-containing grades is also high, averaging 41%. As a consequence the potential
to substitute conventional sources of K2O such as KCl with polyhalite is comparatively low. The following
table summarises the analysis:
ANALYSIS OF THE POTENTIAL FOR POLYHALITE IN MULTINUTRIENT FERTILIZERS IN THAILAND
‘000 tonnes
Year
2012
Total Volume
1,090
Total No. Grades
Total K2O
K2O from Polyhalite
53
169
38
131
% K2O Polyhalite
22.5%
% K2O KCl or Other
77.5%
Volume Polyhalite
Volume KCl or Other
% Formulations using polyhalite
272
218
100%
Base Data: Thailand Department of Customs, Trade Data
It is important to note that this data is for imports, and as a general rule it is more economical to transport
higher analysis products. Nevertheless it is interesting to note that around 22% of the K2O over a
reasonably wide range of products was available for substitution by polyhalite, which is almost 12% higher
than the mix of compounds produced in India.
2-29
METHODOLOGY
The average loading of polyhalite achieved in the mix of products imported by Thailand was 249 kg per
tonne.
TURKEY
Turkish Customs publishes a comprehensive list of compound fertilizer imports by grade. The average
analysis of the imports is high at 50%, with an overall average analysis of 13-21-16. The summarised
analysis of the imports from 2010 to 2013 is as follows:
ANALYSIS OF THE POTENTIAL FOR POLYHALITE IN MULTINUTRIENT FERTILIZERS IN TURKEY
‘000 tonnes
Year
2010
2011
2012
2013
310
405
430
512
9
9
8
10
Total K2O
45
61
68
80
K2O from Polyhalite
13
16
17
21
32
45
51
59
% K2O Polyhalite
28.1%
26.5%
24.8%
25.7%
% K2O KCl or Other
71.9%
73.5%
75.2%
74.3%
Volume Polyhalite
91
116
121
147
Volume KCl or Other
54
75
85
99
100%
100%
100%
100%
Total Volume
Total
No.
Grades
Data Source: Turkish Customs Trade Statistics
The number of grades imported by Turkey is more restricted than for Thailand and with the particular mix
imported the ability to substitute traditional sources of K2O for polyhalite is marginally greater – over the
four years considered on average 26% of K2O could be supplied by polyhalite. The average polyhalite
loading over the four years was in the range of 280 – 290kg per tonne of fertilizer.
KENYA
The Ministry of Agriculture in Kenya published an Economic Review of Agriculture in 2011 in which it gave
data for fertilizer usage for planting, top-dressing and for various key crops, such as coffee, tea and
tobacco. They noted a total of 10 NPK formulations, all of which are complex grades. We do not believe it
is a comprehensive listing for Kenya, but as it represents an under-reported area of the world (Africa) we
thought it interesting to include in the analysis.
The average total nutrient content of the grades sold in Kenya is 45%, and the average K2O content is
13%.
The summary of the data is as follows:
2-30
METHODOLOGY
ANALYSIS OF THE POTENTIAL FOR POLYHALITE IN MULTINUTRIENT FERTILIZERS IN KENYA
000 tonnes
Year
2007-8
2008-9
2009-10
2010-11
38
84
87
94
Total No. Grades
7
5
5
7
Total K2O
4
7
7
8
K2O from Polyhalite
2
4
4
4
Total Volume
2
3
3
4
% K2O Polyhalite
41.3%
57.8%
55.8%
54.7%
% K2O KCl or Other
58.7%
42.2%
44.2%
45.3%
12
28
29
32
4
5
5
6
100%
100%
100%
100%
Volume Polyhalite
Volume KCl or Other
% Formulations using polyhalite
Base Data: Ministry of Agriculture of Kenya – Economic Review of Agriculture 2011
Kenya is interesting in terms of this analysis because it illustrates the importance of the mix of products.
Although it buys between 5 and 7 grades in any given year, in most years between 67% and 70% of the
total reports to one grade – 25-5-5-5S, which can be made entirely with polyhalite – albeit the sulphur
loading will then be 6.8 rather than 5. For this reason the level of polyhalite substitution over the total noted
is very high. The average substitution over the other 4 to 6 grades is of course much lower at around 38%,
although that is a good rate for complex grades.
The Kenyan data illustrates the point that care needs to be taken when extrapolating data from models.
Kenya uses one product extensively on its tea crop which would be ideal for substitution with polyhalite, but
that is the only real conclusion that can be drawn from the data.
SUMMARY AND CONCLUSIONS
In the following table we have drawn together the key data presented in this analysis.
AUDIT SUMMARY OF DATA ON POTENTIAL FOR SUBSTITUTION WITH POLYHALITE
‘000 tonnes Product
India
Thailand
Turkey
Kenya
Ireland
USA
Total
2012-13
2012
2013
2010-11
2012-13
2010-11
Audit
Market Type
Comp
Comp
Comp
Comp
Mixed
Blends
Total Volume
3,067
1,090
512
94
830
9,337
14,931
9
53
14
7
106
19,037
269
639
169
80
8
89
979
1,964
65
38
21
4
45
305
478
574
131
59
4
44
674
1,486
% K2O Polyhalite
10.2%
22.5%
25.7%
54.7%
50.1%
31.1%
24.3%
% K2O KClor Other
89.8%
77.5%
74.3%
45.3%
49.9%
68.9%
75.7%
Volume Polyhalite
466
272
147
32
319
2,177
3,412
Volume KCl or Other
956
218
99
6
74
1,124
2,477
100%
100%
100%
100%
100%
-
Year
Total No. Grades
Total K2O
K2O from Polyhalite
2-31
METHODOLOGY
Care needs to be taken in drawing conclusions from this analysis. We believe that some clear conclusions
can be drawn which are relevant in defining the future potential market for polyhalite. Our conclusions are
as follows:

There are very few formulations in which polyhalite could not be included, assuming willingness
of the manufacturer to use the product. This is important – it will be easier to market the product to
compounders and blenders if it can be incorporated across all of their range rather than limited to a
small number of formulations.

The higher the nutrient analysis for a multinutrient fertilizer, the lower the volume of polyhalite
that will be used in the formulation. The data in from the analysis shows that:
o Complex fertilizers tend to have higher analyses than blends, and will provide a more limited
market for polyhalite than bulk blends.
o The range of potential K2O substitution by polyhalite for complex fertilizers is mostly between 10%
and 25%.
o The typical range of potential K2O substitution in blends is between 30% and 40%, but extends up
to 100% especially for products with a K2O content at or below 8%.

The major producers of NPK fertilizers tend to produce compound (complex) fertilizers. This is
because most of the major producers export, and it is inefficient to move low analysis products around
the world.
o The implication of this for York Potash is that the majority of sales will be to the countries that will
consume the product, and that the end use customers will be the mid-size and smaller wholesalers
and blenders. This constituency may pay marginally higher prices as their annual volumes are
smaller than the largest producers, but equally selling costs are likely to be higher as smaller
volumes need to be shipped to a larger number of users.

Using CRU’s segmentation of blenders and compounders, the analysis of the practical limits of
substituting conventional K2O with polyhalite would suggest a theoretical maximum world
market in 2018 in blends and compounds of 40 million tonnes polyhalite. This also assumes
mostly chloride-containing formulations, although there is bound to be some cross-over with chloride
free grades.
o Taking a range around the average use of polyhalite of 20% either way9, the range could be from
31 million to 47 million tonnes polyhalite.
o CRU’s assessment of the overall polyhalite market in 2018 ranged between 15 million and
36 million tonnes at the lowest price point. This suggests that the two differing
methodologies gave very similar results –we have up to this point been trying to establish the
limits of the market irrespective of price.
o The 6.5 million tonnes that York Potash want to produce at the outset of the project represents
3.7% of total K2O used in blends and compounds, based on CRU’s data. It also represents 16.6%
of the theoretical market available to polyhalite in blends and compounds at that time. If the low
case (-20%) assessment was closer to reality, then the 6.5 million tonnes would represent 20.8%
of the possible market, whereas if actuality was closer to the high case (+20%) it would be 13.8%.
o The actual potential market for polyhalite will be smaller than this, because not all farmers will
want additional sulphur in their formulations.
o We have used CRU’s market assessment for consistency with other reports, on the basis that
FERTECON’s assessment would suggest for compounds and complex fertilizers a similar market
size.
A summary of our analysis in terms of the probable limits to the market for polyhalite in blends and
compounds is given in the following table:
9
i.e. if the average is 32%, 20% of 32% is 6.4%, so the full range would be from 25.6% to 38.4%
2-32
METHODOLOGY
AUDIT SUMMARY OF DATA ON POTENTIAL FOR SUBSTITUTION WITH POLYHALITE
Unit
2018
Average
Low Case
High Case
Compounds
‘000 t K2O
12,842
1,798
1,438
2,157
Blends
‘000 t K2O
11,511
3,684
2,947
4,420
Total
‘000 t K2O
24,353
5,482
4,385
6,578
‘000 t Product
12,842
10,273
15,410
Blends
‘000 t Product
26,312
21,049
31,574
Total
‘000t Product
39,154
31,323
46,984
As Polyhalite
Compounds
Share of Market
- 6.5 million tonnes production
%
3.7%
16.6%
20.8%
13.8%
-13 million tonnes production
%
7.5%
33.2%
41.5%
27.7%

At face value the assessment would suggest that the marketing 6.5 million tonnes of will only need to
take under 4% of the K2O supplied to the target market and which, assuming competitive pricing,
should not be too problematic. This would grow to 7.5% with the increase in production to 13 million
tonnes. We generally argue that new entrants requiring single digit shares of the market can be
successful (assuming competitive costs), but shares above 10% are more difficult. We do however
have concerns. A key feature of the market for polyhalite, as demonstrated in this analysis, is
that it is highly fragmented – most blenders and compounders can use the product, but for only up to
around 40% of their K2O need depending on the mix of products they sell. As has been shown,
polyhalite has practical limits on how much of the market it can take. The share York Potash will need
to take of the market available to polyhalite is between 10% and 20% - our model suggests 16.6%.
Polyhalite usage, to have a potential market of up to 50 million tonnes, is not clustered – it is spread
amongst all the world’s compounders and blenders. It therefore follows that in order to sell 6.5 million
tonnes York Potash may need to sell to around 16% of the world’s compounders and blenders, all of
whom will also need to buy other forms of K2O. This is a much tougher challenge – we are not aware of
any major fertilizer producer that has such a market share for any of its products at the wholesale level,
but Potash Corp, the world’s largest potash company, does have around 16% of global KCl capacity,
which perhaps illustrates the scale of the challenge. It implies that the company will need an excellent
sales network, and that pricing will have to be very competitive. Clearly York Potash would not need to
sell directly to all end-users, but they will need a sophisticated network of distributors to enable as wide
an access as possible. And if the majority of sales needs to be achieved in the bulk blend market, the
stakes raise further: 6.5 million tonnes is almost 25% of the market identified by CRU. In mitigation of
the issue York Potash will no doubt have a broad marketing strategy which will also include targeting
direct applications of MOP. It is fair to note that the ADAS report submitted in support of the
application10 commented that “Polyhalite is very well suited for inclusion in blended / complex fertilizer
products, with other N P and K sources, to produce multi-nutrient fertilizer products. Polyhalite can be
used as a straight fertilizer, but in most situations it would not be practical to supply all crop potash
requirements, because the sulphur supply would greatly exceed crop demand, so use in blended /
complex fertilizers will be the most common”. This implies that whilst there is undoubtedly the potential
for sales in direct applications, they will be limited by the level of sulphate farmers are happy to apply,
rather than the K2O need.

Our analysis is also seeking to establish the theoretical maximum probable market for polyhalite. As
noted, this meant that we adopted formulations which maximised polyhalite use, which in practice
meant that certain popular raw materials in bulk blends, such as ammonium sulphate, were not used.
In practice blenders will continue to want to use these products, which will constrict the market for
polyhalite – i.e. it is more likely that the market is between the average and the low case in the table
above, rather than the average and the high case. CRU’s demand assessment would agree with this
10
The Agronomic Case For Polyhalite, ADAS, 8th April 2014, Executive Summary p.ii
2-33
METHODOLOGY
view (15 million to 26 million tonnes). As noted above, not all farmers will want a defacto addition of
sulphate and magnesium in their formulations, and where a straight NPK, PK or NK is required
polyhalite cannot be used. This will put further pressure on York Potash’s ability to market the product.

In the market analysis presented earlier in the report, we commented on the implication of CRU’s
segmentation that after K2O supplied to complex fertilizers was taken account of, around half of the
balance was used in bulk blends, and half was spread directly. Based on our analysis of the market
presented here, we think it highly likely that York Potash will also need to target the direct application
market as well if it is to achieve its marketing targets.

It is not possible to either assess or predict how product development for blended and compound
fertilizers might change with the availability of polyhalite as a resource. It is fair to suggest that the
availability of a different product to use in formulations may have an impact on the products marketed
by blenders and compounders, which ultimately may have an impact on the overall market for the
product.
2-34
METHODOLOGY
Economic Assessment
INTRODUCTION
In this section we will review the assumptions and analysis presented by CRU in its Polyhalite Market
Study: April 2014 study. The objective has been to verify that the analysis is robust and the conclusions
they draw are reasonable. As has been noted earlier in the report, the data used by CRU, both historical
and forecast, will be different from FERTECON or other consultancies. We have therefore concentrated on
assessing genuine differences of analysis or interpretation rather than small differences of opinion.
CRU’s model takes into account their assessment of production costs, for which they limit the reporting to
the cost of the marginal producer in 2018. This makes any attempt to duplicate CRU’s analysis challenging.
CRU has a good reputation for its cost work and therefore whilst FERTECON might have different opinions
on absolute values, in principle we have accepted this element of the analysis. It is important to their
estimation of market size, but as already reported in the Market Overview section we have verified the
potential market using a different methodology.
We have largely followed CRU’s structure in the following sections, with additional commentary on other
sources of polyhalite, and on chloride free potash.
PRODUCT ASSESSMENT
MOP
In its study for Sirius, CRU noted and highlighted that “the potash content of polyhalite can be considered
to set the floor for the intrinsic value” of the product.11. We agree with this statement. Polyhalite as
marketed by York Potash will be purchased for its K2O content, albeit with other added nutrients, and as
such will be competing primarily with MOP as a source of K2O, and SOP for chloride-free formulations.
CRU noted that since 2010 the value of the potash content has averaged $106.80, with a low of $87.30 in
April 2010 and a high of $118.80 in April 2011. CRU does not note which price series it uses on which to
base this assessment. FERTECON has two NW Europe prices for granular potash, a CIF price for sale in
Europe, and an FOB price based on the export prices achieved by K+S Kali and Cleveland Potash. Based
on CRU’s calculation, a comparison of the historical intrinsic price for polyhalite derived from the different
price series is as follows:
INTRINSIC VALUE OF POLYHALITE VS MOP, 2010 – 2014 (US$/TONNE)
US$ / tonne
CRU
FERTECON
CIF
FOB
Average
$106.80
$103.53
$95.59
Minimum
$87.30
$83.18
$75.25
Maximum
$118.80
$121.45
$119.58
Both FERTECON’s price series deliver slightly lower results than CRU, and with a wider range around the
average. CRU’s average is $3.27, or 3.1% higher than FERTECON’s CIF price and $11.21, or 11.7%
higher than FERTECON’s fob average. We would argue that for an export-oriented business such as
planned by York Potash, the most reasonable series to use is in fact the FOB NW Europe price
11
CRU Consulting, Polyhalite Market Study: April 2014 – a report prepared for Sirius Minerals, page 10
3-35
ECONOMIC ASSESSMENT
benchmark. We would therefore conclude that whilst their estimate of the intrinsic value of polyhalite of
$106.80 is of the correct order of magnitude, it is likely to be toward the high side of any range. We accept
completely that the process of price discovery that both organisations undertake is subject to interpretation,
and would therefore suggest that a mid-way point between $106.80 and $95.59, or $101 is a safer figure
on which to base the value of polyhalite.
In Table 5.3 (page 36) in CRU’s report for Sirius they give the forecast prices used in their model for the
various products by region. This forecast is comparatively opaque. As noted above they appeared to be
using a NW Europe granular CIF price for the historical analysis, which typically (but not always) trades at a
premium in US dollar terms to the ex-Vancouver price for standard grade. However in their forecast they
have a North American price of $425/t for MOP, and a Europe price of $343/t. In recent years the pricing
for standard grades of potash in the USA has been higher than in Europe, mostly due to the fact that the
supply in the US market has been less competitive, so we understand the rationale as to their price
forecast as long as it is the same grade. Based on forecasts, we would expect an average intrinsic value
for polyhalite of $89/t in 2018, with a range around the average of $83/t to $95/t. CRU’s European forecast
for 2018 of $343/t for MOP implies an intrinsic value for polyhalite of $80/t which they then increase to take
account of the value of sulphate and magnesium.
CRU has noted the marginal cost of production in North America at $267/t MOP in 2018. It is relevant to
note that the average cost of production in North America in 2018 is lower. The average cost of potash
available at Vancouver is likely to be between $165 and $170 per tonne, which is equivalent to a K2O cost
at port of between $275/t and $283/t K2O. Whilst we understand and agree with CRU’s thesis, it is
appropriate to note that the major potash producers have more competitive threat than just the level of the
marginal producer. Although our expectations are that the logical response from MOP suppliers should be
fairly muted (see “Industry Response” below) the actual reaction by a specific competitor can potentially be
more severe than that suggested by the analysis of marginal costs.
SOP
A key selling feature for SOP is that is chloride free. In practice the FAO sales specification for SOP has an
upper limit of 2.5% for chloride, which is significant for York Potash, as the polyhalite they sell will contain
chloride. York Potash’s current preliminary product specification has a halite content of 3.07%, which is not
wholly dissimilar to Cleveland Potash’s Granular Polysulphate at 3% maximum for chloride. Given that it
will normally be further diluted in NPKs to the extent that the total chloride from polyhalite will in most
instances be under comfortably under 1% in the final formulation we see no reason why it should not be
accepted as chloride free by customers.
As CRU has noted, the fact that SOP is chloride-free and is sold to a niche market has enabled producers
to charge a premium over the years both in absolute and K2O terms. CRU has estimated this premium to
average $247/t K2O between 2010 and 2014, which equates to $34.58 / t in polyhalite. FERTECON’s
assessment of this premium is a little higher at $264/t K2O based on a comparison with FOB MOP prices,
but when compared to CIF MOP prices somewhat lower at $196/t K2O. In this instance we think there is a
better rationale to use the CIF prices, which are closer to CRU’s, which would give a premium of $27.44/t
polyhalite. The implication of this is that FERTECON believes SOP price levels to be marginally lower that
CRU.
CRU also notes that whilst it would be reasonable to expect polyhalite to have a similar intrinsic value to
SOP when displacing SOP, there will be no such premium when displacing MOP irrespective of the
essentially chloride free nature of the product. We agree with this statement as far as it goes, but would
argue that, because of the market York Potash is targeting (compounders and blenders), this effectively
rules out any premium for the product on the basis of it being chloride free. Our rationale is as follows:


3-36
SOP is used by blenders when chloride free formulations are needed.
As such compounders and blenders are happy to have two sources of K2O in MOP and SOP. As
the two products are manifestly different they can support different prices.
ECONOMIC ASSESSMENT


If polyhalite wants to obtain a premium as a chloride free product it would need to be marketed to
blenders and compounders against SOP only. This it could do, but with the limitations that gives in
terms of volumes – it would mean that the entire theoretical global SOP market accessible to
polyhalite would be 3.2 million tonnes in 2018, equivalent to 11.58 million tonnes polyhalite (see
Chloride-Free Potash below). This is because over 80% of standard and granular SOP is
marketed to compounders and blenders, and the practical limit for polyhalite in formulations is
around 40%.
If, as is logical, it is to be marketed in the largest possible market (MOP), then as buyers will not
accommodate two pricing levels for the same product (i.e. vs. MOP and SOP) then it follows that it
is more likely to have the intrinsic value of MOP in the blender and compounder market.
This is not to say that in marketing polyhalite there is no value in its chloride-free status, but we think that
the value will be captured in the form of market entry and share. Put simply, at equivalent K2O pricing with
MOP the fact that polyhalite is chloride free and contains sulphur will ensure sales and mean that it should
not have to be discounted significantly from the K2O equivalence price with MOP to obtain share. So it has
value, but not one of a significant monetary premium. In some countries polyhalite could be marketed
solely as a chloride free product and in such cases could command a chloride free premium, but this would
restrict the market size.
Polyhalite may have some attractions for farmers who wish to give their fields as low-level dressing of K2O
and sulphate. Were this to be the case, the value of the product would have some equivalence to SOP
adjusted for the respective levels of nutrient (50% K2O and 17% S for SOP, and 14% K2O and 19% S for
polyhalite). Based on FERTECON’s historical data this would give the product an average intrinsic value of
$151 if no value is given to sulphate, which reflects the current reality of the way SOP is marketed in many
parts of the world.
SULPHUR – AS AND SSP
CRU observed that “It is difficult to draw clear conclusions about the potential value of the sulphate content
of the polyhalite product Sirius is proposing”12. We have the same opinion.
As a general observation, one of the consequences of the environmental drive in many parts of the world to
reduce sulphate emissions has been that farmers no longer obtain their free dose of sulphate courtesy of
the atmosphere. This has meant that sulphur depletion in soils is becoming more of an issue, and the
profile of sulphur as a nutrient is increasing. The success Mosaic has had with its Microessentials®
products, which are phosphate-based and include both sulphur and sulphate is testament to the changing
perceptions of the need to incorporate more sulphur in fertilizers. It is equally clear that the profiles of the
most of main sulphur containing fertilizers are substantially derived from the other nutrients they contain –
ammonium sulphate is marketed as a nitrogen fertilizer with some sulphur, SSP as a phosphate fertilizer
with some sulphur and SOP as a potassic fertilizer with some sulphur. Only gypsum (calcium sulphate) is
sold extensively on the basis of its sulphur content over the importance of the calcium it contains. There is
no generally perceived value to the sulphate ion to act as a guide to its value in polyhalite.
Looking to the future, we expect the demand for accessible sulphur (sulphate) for crops will increase. As
part of this trend it is therefore likely that over time there will be greater transparency in the valuation of
sulphate, and this will increase the value of products such as polyhalite. We are not there yet however, and
it may take 10 to 20 years to get there. CRU notes, and we agree with the fact that at the current time there
is no direct relationship between the price of elemental sulphur and the value of sulphate in fertilizers. With
significant surpluses of involuntary sulphur forecast to be available from oil and gas production in the
Middle East and other world areas in future, sulphur deficiency is sure to be a market targeted by these
sulphur producers. The current lack of relationship between the elemental sulphur and sulphate may not
continue indefinitely.
12
CRU Consulting, Polyhalite Market Study: April 2014, A Report for Sirius Minerals, page 24
3-37
ECONOMIC ASSESSMENT
We agree with CRU’s overall conclusions that whilst in certain markets that currently value sulphur more
highly such as North America a higher premium might be available, the overall value of sulphur should be
based on ammonium sulphate when compared with the Black Sea pricing of nitrogen. The difference
between CRU’s and FERTECON’s assessment of annual average Black Sea prices for urea and AN is
minimal, as is shown in the following table. In no year is the difference in urea pricing more than 1%, which
for practical purposes means it was always below $5/t and mostly below $2/t. There is marginally more
difference in AN pricing, with an average difference of 1%. However if 2012 is discounted where there was
a difference of $9.46, for all other years the difference is also below $5/t
COMPARISON OF CRU AND FERTECON’S BLACK SEA PRICE SERIES, 2006 TO 2012
Difference calculated as FERTECON price minus CRU Price
2006
2007
2008
2009
2010
2011
2012
Average
Difference, $/t
-0.31
-1.46
4.84
-0.65
-0.97
1
2.11
0.65
Difference, %
-0.14%
-0.48%
0.97%
-0.26%
-0.34%
0.24%
0.52%
0.07%
Difference, $/t
-2.29
4.71
3.37
0.48
2.04
9.46
2.96
Difference, %
-1.14%
1.46%
2.00%
0.21%
0.66%
3.13%
1.05%
Urea
AN
We believe that CRU’s methodology for assessing the implied value of sulphur in ammonium sulphate is
robust, and there is very little difference between the two companies assessment of pricing ex-Black Sea
for ammonium nitrate and urea. Based on their methodology we can create the following forecast for the
implied value of sulphate based on both the nitrogen value in urea and in ammonium nitrate.
IMPLIED VALUE OF SULPHATE BASED ON FORECAST VALUES OF UREA AND AN (US$/T)
US$ / t
Sulphate Value - Urea Based
Sulphate Value - AN Based
2018
2019
2020
2021
2022
2023
2024
2025
Average
39
20
38
44
41
51
39
45
40
-13
-43
-4
13
7
10
0
8
-3
Data: FERTECON
Ammonium nitrate clearly gives lower levels. If the negative values at the beginning of the forecast are
discounted, the average between 2021 and 2025 is $7/t. However it should be noted that because of the
security concerns associated with AN it is more of a specialist product. In recent years AN has been a more
expensive form of N than urea – in 2013 and 2014 the average premium paid is $96/t N. This could be
viewed as a premium for the additional handling costs and security issues associated with the product. On
that basis it is probably not sensible to use the N value of AN as a predictor for the N value in AS, and
would favour the more widely used urea as the benchmark.
We would consider a comparison of polyhalite and SSP as largely inappropriate in terms of the value of
sulphate. Farmers use SSP primarily as a good local source of phosphate, especially if farming on alkaline
soils – SSP is acidic with a pH of <2. It is particularly popular on pastures on chalk or limestone-based
topography where its acidity can help adjust soil pH into the optimal range for nutrient take up. The sulphur,
and indeed calcium contained in the product is useful, but is generally of secondary consideration.
Polyhalite by contrast is neutral in pH, and will be used as a source of K2O, sulphate, and magnesium.
Equally, it is difficult to value the sulphate in SSP based on similar methodologies to that used in AS, as
SSP is not a widely traded product. If the phosphate value of TSP FOB Morocco or FOB Tunisia is
compared to SSP exported from Egypt (one of the few countries that does regularly export SSP), the
calculation generally gives negative values. The calculation is as follows:
3-38
ECONOMIC ASSESSMENT
IMPLIED VALUE OF SULPHATE BASED ON HISTORICAL VALUES OF TSP (US$/T)
US$ / t
2010
2011
2012
2013
2014
Average
Morocco TSP
470
559
481
376
385
454
Tunisia TSP
472
570
475
378
384
456
Egypt
179
207
208
171
160
185
P2O5 Value Morocco
1,022
1,215
1,045
817
836
987
P2O5 Value Tunisia
1,026
1,239
1,033
822
835
991
P2O5 in SSP - Morocco
204
243
209
163
167
197
P2O5 in SSP - Tunisia
205
248
207
164
167
198
Residual from SSP Price - Morocco
-26
-36
-1
8
-7
-12
Residual from SSP Price - Tunisia
-27
-41
2
7
-7
-13
Value of sulphate - Morocco
-242
-371
16
64
-65
-120
Value of sulphate - Tunisia
-242
-371
16
64
-65
-120
Data: FERTECON, GTIS
Based on this, our conclusion is that the value of sulphate in polyhalite is best assessed on the basis of the
value of sulphate in ammonium sulphate, as this is the main substitution opportunity for polyhalite.
MAGNESIUM
Magnesium has a market and value as a nutrient. FERTECON’s assessment of the market size for SOPM
is larger than that of CRU’s (see the Market Overview) but it needs to be viewed from the context that it is a
small niche market. SOPM in the form of langbeinite contains almost 2 times as much magnesium as
measured as magnesium oxide (MgO) than polyhalite. This will impact the value of magnesium in
polyhalite as the customers for SOPM are primarily buying it for its magnesium content – otherwise they
would buy SOP. Polyhalite also contains only just over half the K2O content of langbeinite, although the
sulphur content of the two products is comparable (19% for polyhalite versus 22% for langbeinite).
CRU has assessed the value of magnesium via its value in Chinese kieserite, as the most competitive
source of MgO for fertilizer producers. We believe this is the correct approach. We would also make the
point that it would be probably incorrect to assume that there is a linear relationship between the level of
MgO in the product and its value – lower value grades will be less flexible for using in blends as more of the
product will be needed to obtain the required level of MgO. Polyhalite is at the low end of the scale
compared with other commercially available products – it is equivalent to schoenite (K2SO4.MgSO4.6H2O)
at 6%, but below the next lowest products: kainite (MgSO4.KCl.3H2O), magnesium nitrate (Mg(NO3)2.6H2O)
and magnesium sulphate (Epsom salt, MgSO4.7H2O) all contain 9%. Schoenite and kainite are naturally
occurring minerals and therefore will be competitive in terms of production costs with polyhalite, but
magnesium sulphate and magnesium nitrate will be a more expensive sources. The fact that kieserite is a
preferred source and that its magnesium content is 15-17% does suggest that whilst buyers will attribute
some value to the magnesium in polyhalite, for those seeking to source MgO it is unlikely to be a product of
choice.
If CRU are assuming an MgO content of 25% in kieserite, then their unit price of $2.69 implies a Chinese
kieserite price of $67.25. Based on recent history this seem to be a little low. Chinese Customs report the
following annual average export price levels of kieserite:
3-39
ECONOMIC ASSESSMENT
AVERAGE ANNUAL EXPORT PRICES FOR KIESERITE FROM CHINA, 2006 - 2013
Chinese Export Price in US$ / tonne
Year
Price
2006
72.40
2007
68.17
2008
112.7
2009
70.56
2010
70.35
2011
113.89
2012
130.48
2013
136.28
Volume Weighted Average from 2010
99.64
Data: China Customs via COMTRADE
As previously noted, FERTECON does not track kieserite price levels, and we are therefore are cautious in
terms of the interpretation of this data. However, if the methodology is seeking to identify a low-cost source
of kieserite for global consumption, which we believe it is, then the implication from the table is that CRU’s
kieserite price may be around $32/t too low. This will only seek to increase the potential premium for MgO
and therefore it does not undermine CRU’s overall analysis.
OTHER SOURCES OF POLYHALITE
Although polyhalite has only recently started to be produced and marketed by first intent, the deposits in
northeast England are not the only polyhalite deposits in the world. There are resources in the Western
USA, which Intercontinental Potash Corp. (ICP) is seeking to exploit. In Europe the deposit exploited by
Cleveland Potash and for which York Potash is seeking approval is part of the Zechstein Sea evaporite
basin extends from the UK in the west through to Lithuania in the east, taking in north Poland where there
are known deposits in the Bay of Puck in the Gulf of Gdansk. Limited work on the Polish resource suggests
a resource of around 670 million tonnes, although very little work has been done on the deposit – of the
670 million tonnes only 12 million could be considered measured and indicated, with the balance an
inferred resource.
EXTENT OF THE ZECHSTEIN SEA EVAPORITE BASIN
Source: Zechsteinmagnesium.com
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ECONOMIC ASSESSMENT
In addition to the polyhalite, the evaporite basin is exploited for magnesium chloride by Zechstein Minerals,
a joint venture between Nedmag Industries Mining and Manufacturing, and R&H Minerals which has a
solution mine in Veendam in the Netherlands.
In a fact sheet on polyhalite published by Mineral Data Publishing in 2005, publishers of the Mineral Data
Handbook, notes the distribution of polyhalite resources as being “In Austria, from Ischl, Bad Auss´ee, and
Altauss´ee, Upper Austria; at Hallstatt, Styria; and from Hall, Tirol. In Germany, from the StassfurtWesteregeln district, Saxony-Anhalt, and at Berchtesgaden, Bavaria. On Vesuvius, Campania, Italy. In
England, in the Boulby potash mine, northwest of Whitby, Yorkshire, England. From Maman, Iran. At Tuz
Goelue, Turkey. In the Nagaur-Ganganagar Basin, Rajasthan, India. From the Qarhan alt lake, Quadam
Basin, Qinghai Province, China. In the USA, in the Carlsbad potash district, Eddy Co., and adjacent parts
of Texas; in the Paradox Basin, Grand Co., and elsewhere in Utah.”13
Since this listing was produced ICP has discovered polyhalite in New Mexico in the northern section of the
Delaware Basin. The references to the Paradox Basin further north in Colorado and Utah, have been
confirmed in published information from the exploration company Passport Potash.
In addition to the deposits noted in the list, exploration in the Zeit South Gharib formations in the Gulf of
Suez for oil has noted both sylvinite and polyhalite in core samples14, and independent of such references
in the literature, the Consultants have been approached by parties seeking advice as to whether the
sylvinite and polyhalite might be commercially exploited.
At the present time only Cleveland Potash produces polyhalite, and Intercontinental Potash and Sirius
Minerals have projects to commercialise resources. Potash is produced in regions such as Qinghai in
China, but as far as we are aware no polyhalite is being isolated for commercial sale. The NagaurGanganagar basin is not commercially exploited at the current time. The Geological Survey of India has
published data on the potash potential of the basin, confirming “In the area explored for potash, it has been
noticed that polyhalite [K2Ca2Mg (SO4)2.2H2O] occurs more frequently than any other potash mineral. It
occurs mostly as stringers, pods, irregular laminae and thin beds and is mostly associated with Halite
sylvite and occasionally with anhydrite in all the seven Halite cycles. The thickness of undivided polyhalite
mineralized zone varies from 0.05m to 27.27m containing 0.1% to 10.20% K.”15 The impression given in the
report is that the amount of exploration in terms of drilling so far completed is limited. The Indian
Government has been sufficiently concerned about the price of potash that if polyhalite proves an
acceptable source of K2O and it feasible to produce it economically, they will surely promote a project.
Much work needs to be done before they can prove there is a viable resource in the basin, and therefore it
cannot be considered a probable project at this stage.
In the following sections we will review Cleveland Potash and ICP as the most immediate competitors to
the York Potash project.
CLEVELAND POTASH
Cleveland Potash Ltd.’s (CPL) mine at Boulby is owned by Israel Chemicals Ltd. (ICL). In addition to CPL,
ICL has potash production capacity in Israel using Dead Sea brines (Dead Sea Works) and in Spain
(Iberpotash). CPL is wholly owned by ICL. Potash Corporation of Saskatchewan, the world’s largest potash
producer by capacity, owns 14% of ICL. ICL has also recently invested $23 million for a 16% stake in
Allana Potash, a development project in Ethiopia.
Cleveland Potash’s production focuses on MOP. Formal production data is no longer published, but annual
production is understood to be typically between 500,000 t and 700,000 t – FERTECON records annual
13
Mineral Data Publishing - http://rruff.info/doclib/hom/polyhalite.pdf
A.S.Alsharhan: Petroleum geology and potential hydrocarbon plays in the Gulf of Suez rift basin, Egypt, AAPG
Bulletin, Vol 87, No.1 January 2003
15 Geological survey of India, Potash Deposit of Nagaur-Ganganagar Basin of Rajasthan – A Case Study
http://www.portal.gsi.gov.in/gsiDoc/pub/cs_potash.pdf
14
3-41
ECONOMIC ASSESSMENT
average production for CPL of 542,000 tonnes annually between 2010 and 2013. It claims to have
significant polyhalite resources; an ICL press release from April 12th 2011 noted that “geological studies
conducted by Cleveland Potash … indicate that more than a billion tonnes of polyhalite ore are located in
its Boulby mines..”16 It is important to note that this claim is not independently verified and therefore
needs to be treated with caution until the company provides appropriate evidence for it. In April 2014 it
announced that, following receipt of a UK£4.9 million grant from the UK Government it would implement a
UK£38 million investment program to increase polyhalite capacity from approximately 130,000 tpa to
600,000 tpa.
Both ICL and CPL were initially dismissive of polyhalite. It is both interesting and significant that having now
decided to produce and market the product that in their sales literature describes polyhalite as “Essentially
a straight form of sulphur”17. The marketing of the product focuses on sulphate supply, with some additional
K2O and magnesium. On balance we think it is possible that the commercial logic for CPL, as an existing
producer of potash is to differentiate the products completely – so polyhalite is marketed as Polysulphate
for sulphur and not as a primary source of K2O.
The sales prospects for York Potash, and by definition the success of CPL’s marketing of polyhalite will be
enhanced if both projects are in production. Polyhalite is a new product in the fertilizer industry, and
building sales for new products is always easier with more than one producer – the product has more
market visibility with a number of producers promoting it, and buyers are more confident with the product; in
general they dislike purchasing products for which there is only one source and indeed some companies
will not buy products unless they can buy from at least two suppliers and can therefore have some
confidence in the prices charged.
CPL will clearly be York Potash’s most immediate and important competition should the project be built.
CPL’s presence in the market has advantages and disadvantages for York Potash. The advantages include
that CPL will have spent at least 5 years developing a market (2013 – 2018) by the time the prospective
new mine is built, and buyers will then also have two different sources to purchase from. The
disadvantages include the fact that there will not be much to differentiate the products, although it does
seem the marketing strategies will be very different which may confuse the market, and that CPL has a
mature business and marketing network, and can add the marketing of polyhalite to this distribution
channel at lower costs than developing a new network.
INTERCONTINENTAL POTASH CORPORATION
Intercontinental Potash Corporation or IC Potash (ICP) is a public company listed on the Toronto Stock
Exchange (TSX) with the ticker ICP, and on the OTCQX exchange with the ticker ICPTF. It is an
exploration and development company, and is developing the Ochoa polyhalite deposit in New Mexico,
USA. The project seeks to mine polyhalite and produce SOP.
The project is well advanced. They have a NI 43-10118 compliant measured and indicated resource of
1,017.8M tonnes of polyhalite averaging 83.9% polyhalite, of which 511.7 million tonnes at 84.5% is
measured and 506.0 million tonnes at 83.3% is indicated. There is a further 284 million tonnes inferred.
The resource will require underground mining, and the measurement used the cut-off of a minimum of 4
feet (1.22m) seam depth, and a minimum grade of 65% polyhalite. In the first quarter of 2014 Agapito
Associates and SNC Lavalin completed a feasibility study for the project, which envisages mining 3.7M
tonnes of polyhalite annually which would be processed into around 714,000 tonnes of SOP. The study
noted an average feed-grade of polyhalite to the processing plant of 80%, and a recovery of 82.28%.
The project will process the polyhalite into SOP using a two-stage counter-current hot leach process,
whereby the polyhalite is crushed, screened, heated, and converted into a hot brine. The hot brine goes to
ICL Fertilizers, ICL to begin mining vast reserves of polyhalite…”, Press release, 12th April 2011
ICL Fertilizers / Cleveland Potash: Polysulphate – A new sulphate fertilizer for better crops, January 2012
18 NI 43-101: The Canadian National Instrument 43-101 is one of three globally recognised codes for defining
mineral resources.
16
17
3-42
ECONOMIC ASSESSMENT
a primary crystallisation circuit, from where it is fed to a secondary circuit from where the SOP is extracted,
crystallised, and fed to a fluid-bed drier. Dissolved NaCl and magnesium sulphate are fed to separate
evaporation ponds, and gypsum (calcium sulphate) is dried and stockpiled. There are no plans at present
to produce a commercial grade of polyhalite.
In March 2012 the major fertilizer producer Yara invested C$40M into the project, and signed a long-term
off-take agreement to take 30% of all production from the project. Yara has one member on the ICP Board
overseeing this investment.
In April 2014 the project received permits from the US Bureau of Land Management to “to construct and
operate its 100%-owned Sulphate of Potash Ochoa Project, including all mining and processing facilities
located in southeast New Mexico, USA. The signed Record of Decision marks the final decision made by
the BLM based on the analysis described in the Final Environmental Impact Statement. 19 Having
completed full feasibility and now received permitting, the final part of this phase of the project is to raise
the US$1.018B required to build it. To this end also in April 2014 the Company appointed Mitsubishi UFJ
Financial Group as its financial advisor to “provide advice with respect to project financing, including both
debt and equity.””20 . On 26th November 2014 ICP announced a $10 million investment in the company by
Cartesian Capital Group21. This investment will presumably provide working capital for the company whilst
it attempts to obtain full funding for its project over the next months.
All development projects by so-called junior mining companies (i.e. exploration and development
companies) have two key phases – proving the resource and the viability of the project, i.e. the exploration
drilling to prove the resource, leading to a full independent feasibility study proving the viability of the
project, followed by the construction phase, which includes raising the finance to do so. In general junior
mining companies would probably prefer to sell the company on at the end of the exploration and project
viability phase to a major producer, providing a return to shareholders, and enabling them to remain in their
comfort zone of exploration. To sell on requires of course a willing buyer. In the case of IC Potash at the
time of writing this report the significant off-taking partner, Yara, has not yet indicated it is willing to buy out
the project from the other shareholders. The project therefore has the task of raising over $1.0B. We expect
the ICP project to be built as planned in the fullness of time. If so it will become a significant source of SOP
for both the Americas market and for export. If the marketing of polyhalite by York Potash into its target
markets significantly impacted its ability to sell SOP then one competitive reaction could be to consider
producing polyhalite. This is clearly a speculative view as ICP has not included marketing polyhalite in any
of its published plans, no doubt because the competitive threat is equally speculative. Although the grades
of polyhalite produced by York Potash and ICP differ (York Potash’s grade is slightly more concentrated),
both will use underground mining, and therefore should ICP decide in the future to isolate polyhalite to sell
its costs to do so are likely to be broadly similar to York Potash.
We think that if the York Potash project is built and they chose to market the product in North America, it is
possible that they would face competition from IC Potash. The York Potash project would, at the very least,
validate the potential of polyhalite production for ICP.
CHLORIDE FREE POTASH
Chloride free potash fertilizers, in the form of SOP and SOPM have a current combined market size of
around 7.3 million tonnes product. In the case of SOP volumes have been somewhat constrained recently
by production issues in Europe, but globally capacity utilisation rates are in the 50% to 60% range. This
would not imply a market that is fundamentally constrained from growth by product availability.
Whilst Mannheim process SOP continues to be produced, SOP from that process will need to sell at a
premium to MOP to account for the fact that MOP is a key raw material.
19
20
21
ICP Press Release, 14th April 2014, Company Website.
ICP Press Release, 23rd April 2014, Company Website.
ICP Press Release, 26th November 2014, Company Website
3-43
ECONOMIC ASSESSMENT
Key markets for SOP, such as that for fruit and vegetables, have good historic growth rates. The FAO
notes a growth rate for global vegetable production of 2.2% p.a. between 2000 and 2010, and 2.7% p.a. for
fruit. Clearly not all fruit and vegetable production uses SOP or SOPM as a fertilizer and therefore there is
some scope for higher growth rates through greater market penetration. However within the conventional
markets for chloride-free potassic fertilizers the scope for market-changing growth rates is limited –
FERTECON is forecasting a growth rate for SOP of 3.5% p.a., i.e. higher than historical growth rates for
fruit and vegetable production, but without new markets there is no expectation of annual growth outside a
0% to 5% range.
Without brand new markets, for chloride-free grades to grow faster than their traditional market they will
need to take share from MOP. On cost grounds this is clearly not possible for Mannheim process product,
but for natural SOP products which incur similar categories of costs to MOP (mining, above-ground
processing), there is more scope for competition. SOP, with its sulphur, contains a higher nutrient content
than MOP (67% vs 60%) albeit a lower K2O content. However there are three key reasons why the concept
of natural SOP displacing MOP is flawed. These are:

Cost: Most natural SOP producers have higher costs than MOP producers. IC Potash for example
has a forecast site cost for SOP of $195/t, which is close to double the level that the lowest cost
MOP producers in Russia and Saskatchewan might expect. For a natural chloride free product to
compete with MOP it would need competitive like-for-like costs.

SOP is a multinutrient: Not all consumers of K2O want additional sulphur. In addition where
blenders have specific requirements as to the level of sulphate relative to N, P2O5 and K2O the
fixed level of sulphate in polyhalite makes formulating more complicated (see p.26 above). Unless
sulphate is being added to the blend through ammonium sulphate or gypsum, blends using MOP
will generally not contain sulphate which would mean it is not required by the farmer, who would
not pay a premium for it.

KCl contains chloride: By definition there is no significant intrinsic value in the product being
chloride free, as the presence of chloride is not problematic to current buyers.
These arguments are relevant in considering the product substitution of MOP with polyhalite. They tend to
reinforce the view that for polyhalite to compete as a source of K2O it will need to be priced competitively.
Sirius has noted that part of its broadly based marketing strategy will be to target the chloride free market in
terms of the substitution of SOP and SOPM. It is therefore worthwhile to comment further on the SOP
market, as this is not an homogenous sector.
There are three main grades of SOP marketed:
 Standard grade
 Granular grade
 Soluble grade
Standard and granular grade are mostly differentiated by physical form, with standard grade having typical
specifications requiring 90% of the product to have particle sizes below 1.0mm, and granular grade having
90% of the product with a particle size above 2.0mm. Soluble grade is used in fertigation and foliar
fertilizers, and has a number of key attributes. It needs to be quickly and completely soluble – typical
specifications call for less than 0.1% insoluble matter, and 90% dissolved in e.g. 3 to 4 minutes. It also
needs to be acidic in order to help prevent the natural salts in water precipitating and blocking nozzles in
irrigation equipment. As SOP derived from natural brines (primary production) tends to be pH neutral, and
reducing the level of insolubles (typically 1% - 3%) has a cost associated with it, the soluble SOP market is
currently the preserve of Mannheim process producers. There is a small market in developing economies
for adding SOP to flood irrigation systems which does not require such low levels of insoluble matter, but
most soluble product is sold for fertigation and foliar fertilizer applications where the level of insolubles and
the pH are critical.
3-44
ECONOMIC ASSESSMENT
Most standard and granular grade is sold to compounders and blenders. In general bulk blenders will buy
granular product to ensure the blended mix has a relatively uniform particle size and therefore the risk of
the different components settling out is minimised. Complex and compound fertilizer producers will
generally use standard grade as it is less expensive and the product will be thoroughly mixed (physically or
chemically) and then granulated in the final fertilizer. Based on discussions with producers, sales of
standard and granular product direct to the market for direct application is between 10% and 20% of sales,
with between 80% and 90% being sold to blenders and compounders.
Fully soluble product accounts for around 7% - 8% of the current market, or sales of between 350,000 and
400,000 tonnes annually. This sector of the market is mostly sold in bags direct through the wholesale and
retail network. However, because of the specification required (insolubles, acidity) it is unlikely to be
accessible for substitution with polyhalite.
Based on FERTECON’s forecasts, SOP the market that would be accessible to York Potash for
substitution in 2018 would comprise:
 Around 4,988,000 tonnes SOP to blenders and compounders. Based on an analysis of over 100
possible blends, polyhalite could substitute up to 40% of the total, or a total of 1,995,000 tonnes
SOP
 Around 1,247,000 tonnes of direct sales.
The total accessible is 3,242,000 tonnes SOP, equivalent to 1,621,000 tonnes K2O, or 11.58 million tonnes
polyhalite. This assumes all blenders and compounders that can use polyhalite substitute it to the
maximum level.
In addition to the SOP market, there would be SOPM substitution. If we assume that all SOPM could be
substituted by polyhalite, and the market is around 2.7 million tonnes in 2018, this would add a further 4.6
million tonnes of polyhalite potential.
In 2018, based on this analysis, the maximum non-chloride market accessible to polyhalite will be just over
16.18 million tonnes. This is forecast to grow to 16.56 million tonnes by 2025.
From a marketing perspective, the management of York Potash therefore has choices. If they wish market
polyhalite in order to obtain a premium over MOP, they will need to restrict substitution to SOP and SOPM
only. If they do this they will need to obtain approximately 40% of the maximum potential market in 2018 to
sell 6.5 million tonnes, and 78% of the maximum potential market in 2025 in order to have sales of 13
million tonnes, assuming no constraints on price. Alternatively they can have a broader marketing approach
which also targets MOP at the blenders and compounders. This will ensure there is a much larger market
to place the product into, but the probability of obtaining premiums over MOP substitution pricing is
reduced.
Promoters of primary SOP projects in North America have commissioned reports that suggest that the
potential market for chloride free products is currently price constrained, and if crops which are sensitive to
but not intolerant of chloride had cost-competitive chloride free sources of K2O open to them they would
switch to the chloride-free products. Evidence for this concept is cited from China, where SDIC Xinjiang
Luobupo Potash’s commissioning of initially 1.2 million tonnes of SOP has significantly stimulated the SOP
market. Reports commissioned by project developers suggest the US chloride free market might be up to
three times larger with more competitive SOP available to farmers. This is potentially interesting for the
marketing of polyhalite, and there are a number of implications:


It needs to be clearly stated that although the arguments are reasonable, the potential additional
demand remains speculative. Primary SOP remains a more costly source of K 2O than MOP and
there is no evidence as to how MOP producers would react to such market developments.
The key issue is the cost of K2O. For additional volumes to be realised the value of K2O in SOP will
need to be much closer to the value of K2O as supplied by MOP. This would therefore imply that the
premium for SOP over MOP would be significantly reduced. It is possible for primary SOP producers
to do this, but Mannheim process producers will not have the option.
3-45
ECONOMIC ASSESSMENT

The impact on the potential for polyhalite would therefore be that the overall potential market is
larger, but that pricing was largely determined by equivalence to, or a small premium over MOP
based on the potential of greater crop yields.
There is therefore the possibility that lower-cost product will grow the market. This is however another
example of choices that the marketers of projects will need to make: if they wish to maintain higher
premiums over MOP the market is the size it is, and if they want larger volumes the premiums will be
significantly lower.
OTHER ASPECTS OF THE ECONOMIC ASSESSMENT
FREIGHT COSTS
As a general rule in fertilizers, the lower the nutrient content the lower the proportion of total sales of the
product that are traded internationally. We illustrate this in the table below, where the products are ranked
by their primary nutrient content – i.e. the nutrient which is present in the largest amount and categorises
the product such as nitrogen for ammonium sulphate, phosphate for diammonium phosphate, or potassium
for potassium sulphate.
TRADE AS A PROPORTION OF PRODUCTION FOR KEY FERTILIZERS, 2012
Products Ranked by Primary Nutrient Content
Primary Nutrient
Total Nutrient
Production
Trade
Trade
Nutrients
%
%
Million t
Million t
%
Supplied
16% - 20%
29 - 36%
31.4
1.7
5%
P, S
21%
45%
22.5
10.6
47%
N, S
28 - 32%
28 - 32%
195.3
30.2
15%
P
AN
34%
28 - 34%
20.7
5.9
28%
N
Urea
46%
46%
161.5
43.0
27%
N
TSP
46%
47%
5.8
4.2
72%
P, S
DAP
46%
64%
35.2
14.5
41%
N, P
SOP
50%
67%
4.5
1.5
34%
K, S
MAP
52%
63%
14.5
6.7
46%
N, P
MOP
60%
60%
51.8
41.9
81%
K
SSP
AS
Phosphate rock
Data: FERTECON
For the two products that have a combined nutrient content of 30% or lower (phosphate rock and SSP) the
proportion of trade compared with production is less than 20%, i.e. over 80% of production is consumed in
the country it is produced. Rock grades do go up to 38%, but over 62% of rock exported is at 30% or under.
Ammonium sulphate might be deemed to buck the trend a little, but its combined nutrient content is
reasonably high (45%) and it is mostly produced by involuntary production, and consequently whilst
producers will want to make money from it where possible and important issue for them will be to dispose
of it, which means they will move product further, and at lower margins than those for product produced by
first intent.
The reason why rock and SSP and to an extent AN / CAN are proportionally used more in the country of
production is that it is more efficient to do so. For example dry bulk freight rates from Morocco to Brazil are
typically between $20/t and $25/t. If we assume $20/t for the freight, it would cost a Brazilian importer
$100/t in freight to bring in 1 tonne of P2O5 as SSP, $62.50 to bring in 1 tonne P2O5 as 32% phosphate
rock, and $43.48 to bring it in as DAP. Ultimately farmers want the phosphate, and therefore exporting in
the most concentrated forms makes more commercial sense. So the trends are to produce fertilizers at the
3-46
ECONOMIC ASSESSMENT
source of the low-nutrient raw materials, and to ship high-analysis fertilizers. This also provides one reason
why the MOP market can remain so concentrated. Potassium is not a rare element – it makes up 7% of the
earth’s crust – but good reserves of sylvinite are not common. Because MOP is a highly concentrated form
of K2O it makes more commercial sense to build world-scale mines where there are good resources and
ship the product, rather than proliferate smaller mines without the economies of scale offered by the large
mines. So in spite of there being around 35 public exploration and development companies promoting
potash projects over the last 5 years only one – the Potash One project in Saskatchewan acquired by K+S
is currently financed and under construction. A number of other projects including IC Potash, Mag Minerals
and Elemental Potash and Allana Potash have completed feasibility studies and have either investment
from fertilizer producers or from China, but none has yet been able to finalise and secure financing.
Chinese and Vietnamese backers have also invested in some shallow, small-scale projects in Laos. The
scale needed to justify the high costs of construction for underground mining make raising the money
challenging, even with blue-chip partners.
Polyhalite has a combined nutrient content of 39%, excluding calcium which is also excluded on products
such as SSP and CAN. Its primary nutrient content, depending on whether it is being marketed as a form of
K2O or sulphate is between 14% and 19%. Based on other fertilizers one might therefore expect that trade
as a proportion of production might reasonably be anywhere in the range of 25% to 50%. However most
polyhalite produced in the UK will ultimately be exported – all the studies on this subject have concluded
the UK market for polyhalite to be in the low hundreds of thousands of tonnes range, and between them
York Potash and CPL will have 7.1 million tonnes of capacity following the first phase of the York Potash
project. Is this level of exports a reasonable expectation?
At a headline level it is arguable that with a nutrient content of 39% polyhalite is almost in the high-analysis
category of fertilizer, and at worst could be categorised as a transition material between low and high
analysis. However the key assumption in such a statement is that all three of the nutrients present are
equally valued. We think in most circumstances this is highly unlikely to be the case. Buyers will purchase
the product based on a requirement for either K2O or sulphate, with the acceptance that the other nutrients
are useful, but perceiving them as the key reason for buying.
We do not think it appropriate to draw the conclusion from this assessment that because of the nutrient
content of polyhalite it is unlikely that a predominantly export-oriented business could be developed.
However we do think it appropriate to highlight that if successful the business will be significantly different
to the other fertilizer products being marketed.
The impact of ocean freight rates on pricing for polyhalite can be modelled. In the following table we have
taken the freight rates noted by CRU for 2013 for Teesside to Brazil (Santos) and to China (Qingdao).
Using the CFR average price for potash for Brazil and China in 2013 one can calculate the price needed to
polyhalite taking freight into account, and assuming parity with either the CFR price in K2O terms, or the
netback to port-of-origin in K2O terms. Of these two metrics the parity with the CFR price is what would
be required to be competitive, and the difference between the K2O price and netback is effectively the
concession in value for the polyhalite producer in order to compete. The data for 2013 is as follows:
IMPACT OF FREIGHT ON PRICE AND NETBACKS TO BRAZIL AND CHINA, 2013
Costs in US$ /t product and US$/t K2O
Freight Rate
CFR Price
Netback
To Brazil
$/t
$/t K2O
$/t
$/t K2O
$/t
$/t K2O
from Vancouver – MOP
35
58
407
678
372
620
from Teesside -CFR K2O Parity
23
166
95
678
72
513
from Teesside - K2O Netback Parity
23
166
110
786
87
620
25
42
411
685
386
643
To China
from Vancouver – MOP
3-47
ECONOMIC ASSESSMENT
from Teesside -CFR K2O Parity
49
351
96
685
47
334
from Teesside - K2O Netback Parity
49
351
139
995
90
643
Freight Rate Data – CRU;, Price Data - FERTECON
In 2013 to Brazil to achieve a landed price in K2O at parity with MOP the CFR price for polyhalite would
have needed to be $96/t, or a netback (effective FOB price) of $72/t. For the business to achieve the same
net-back to Teesside as the Canadian’s received to Vancouver in K2O terms, the polyhalite would have
needed to be sold for a CFR price of $110/t or a net backed price of $87/t. The effective price concession
based on the need to ship lower-nutrient product is therefore $15/t polyhalite ($87 - $72). Brazil is one of
the markets which is closer to Europe. If one considers China, then to compete in 2013 the net backed
price would have needed to be $47/t, with the effective concession being $43/t ($90 - $47). We recognise
that York Potash will be marketing polyhalite as a multinutrient product and will be seeking a premium for
the sulphate and magnesium in the product which, if obtained, will increase prices and netbacks.
Nevertheless we think that the table above is helpful in illustrating the impact of freight costs on the netback
to Teesport for the company.
The challenge for York Potash is that whilst some blenders and compounders are at the ports, most are
not. Inland freight then needs to be taken into account, with the same multipliers – an inland freight rate of
$10/t means that to ship one tonne of K2O onward costs $16.66/t K2O for MOP and $71.42/t K2O for
polyhalite. In general title to the product will have changed hands at the port and therefore it will be a
problem for the wholesaler or distributor, and wholesale and distribution prices will be higher to provide
margin for those involved, but the latter will clearly use the issue in terms of their price negotiations. Equally
the price levels sought by York Potash will seek to obtain premiums over the straight parity level on K2O
based on the sulphate and magnesium in the product.
FERTILIZER APPLICATION COSTS
CRU has estimated the increased costs to the farmer in using polyhalite compared with other straight
fertilizers. They note that fertilizer application costs are comprised of the cost of the fertilizer, and the cost
of operating the equipment to spreads it, which has fixed cost elements (purchasing the equipment etc.)
and variable costs, principally fuel. The costs of spreaders will vary widely depending on the sophistication
of the technology employed, and fuel and labour costs will vary significantly depending on geography.
Taking all this into account they have estimated a range of $0.50 to $1.50/ha for application costs. We think
that for the exercise in hand this is a fair range.
One point not made by CRU is that where polyhalite is used in blends or compounds purchased by the
farmer, there is no extra cost to the farmer for application. Clearly one tonne of 15-15-15 formulated with
polyhalite will cost the same to apply as a tonne formulated with MOP. This is one of the key benefits in
marketing to the blender / compounder market as there are no further on-costs in comparison with other
blended products once it has been incorporated into a formulation. By comparison if sold to the farmer
directly then all of the issues associated with distribution of low analysis products continue to apply.
Where the product is applied directly CRU makes the point that the use of polyhalite might reduce “the
need for additional passes to apply magnesium of a top-up application of sulphur then the cost differential
is further reduced to a point where it may not be more expensive to apply polyhalite”22. This may be true,
but equally if polyhalite is being used at the expense of products such as ammonium sulphate the farmer
may have to increase N from other sources, which may be neither possible nor desirable to do in one pass.
There is a simple relationship between the cost of application and the weight of fertilizer that needs to be
applied. If the use of polyhalite reduces that weight then costs will be reduced, and if it increases it then
costs will increase. We agree with the conclusions of CRU in Table 5.723 that when most products are
substituted by polyhalite there is an increase to the application costs by the farmer. On this basis in most
22
23
CRU Consulting, Polyhalite Market Study: April 2014, page 40
3-48
ECONOMIC ASSESSMENT
circumstances the use of polyhalite directly by farmers will increase application costs – a neutral impact or
cost reduction will only be in a small minority of cases.
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ECONOMIC ASSESSMENT
INDUSTRY RESPONSE
We agree with CRU’s approach to model two extremes of response by current suppliers to the market, i.e.
no response at one end and the high response of reducing prices to the cost of production at the other.
Different competitors will have different reactions and by modelling the two extremes it is possible to map
out the range of price implications.
We differ from CRU in terms of likely time that competing producers would operate at low prices – CRU
estimates 12 to 18 months24. Our experience across many industries suggests it will be longer than that.
The standard reactions to competitive pressures are:



Denial – Management optimistically believes that the pressure will be short lived and that within a
short timeframe everything will revert to normal. It will frequently take at least one year of poor
results to convince Management and company boards that there is indeed a problem.
Planning – Having acknowledged that there is a problem, the company then needs to decide on a
strategy for response. It can take between 6 months and 1 year to assess the problems, consider
the options and gain agreement on a course of action; it rarely takes 3 months or less.
Implementation – The new strategy is implemented and the results are assessed. This will
normally be given at least one year to see if successful.
So if a company reduces its prices immediately in response to the competitive threat, to expect that they
have assessed and have a new strategy to implement in under two years is in our view optimistic, and in
any event the strategy may be to price-target polyhalite.
Given the structure of the industry, we would expect most suppliers of MOP and possibly many suppliers of
SOP to be quite cautious in their approach to competition with polyhalite. This is because of the
relationship between declining prices and volumes and the fact that reducing prices is not guaranteed to
protect volumes, i.e. in the worst case they could reduce prices and still lose the volume.
If a producer sells 1,000 tonnes of KCl at $500/t, and has to reduce the price by $50/t, they need to sell an
additional 111 tonnes at $450 to replace the lost revenues. A reduction of $100 requires an additional 250
tonnes. The relationship is as follows:
24
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ECONOMIC ASSESSMENT
RELATIONSHIP BETWEEN PRICE AND VOLUMES TO MAINTAIN REVENUES
MOP Price $/t
550
500
450
400
350
300
250
200
150
100
0
100
200
300
400
500
600
700
800
900
1,000 1,100 1,200 1,300 1,400 1,500 1,600
Replacement tonnes required
Data: FERTECON
Compounders and blenders will know that polyhalite is unlikely to take more than 35% of the K2O sold to
any blender, and frequently it will be less than that. In the following table we illustrate the implications of
price cutting to a blender buying 600 tonnes of K2O:
ILLUSTRATION OF THE IMPACT OF CUTTING PRICES FOR MOP TO SUSTAIN VOLUMES
Volume in tonnes
Total Product
Total
Sales
K2O
Price/t
Product
Value
$
Price
/t K2O
600
$500
$500,000
$833
1,500
210
$112
$168,000
$800
650
390
$500
$325,000
$833
Original Sales
KCl (A)
1,000
Maximum Competition by Polyhalite - Loss of 35%
Polyhalite
KCl (B)
Loss Vs Original (A - B)
Maintain Sales
$175,000
1,000
600
Polyhalite Equivalent Price
$325
$325,000
$542
$76
Sales Needed at reduced Prices to Match Maximum Competition
KCl
684
410
$475
$325,000
$792
KCl
722
433
$450
$325,000
$750
KCl
765
459
$425
$325,000
$708
KCl
813
488
$400
$325,000
$666
KCl
867
520
$375
$325,000
$625
KCl
929
557
$350
$325,000
$583
In the illustration the blender buys 600 tonnes of K2O, which is initially supplied as MOP (1,000 tonnes) at
$500/t. The business is therefore worth $500,000 to the MOP supplier. If polyhalite replaces 35% of the
K2O and the MOP supplier maintains the price, the loss of revenue for them due to the lost volume is
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ECONOMIC ASSESSMENT
$175,000, i.e. revenues drop to $325,000. They might think that by dropping the price they can maintain
revenues. The illustration shows that if they drop the price by $25 to $450/t, they will need to sell 684
tonnes of KCl to equal the value of losing the full 35% but keeping the price, i.e. 34 tonnes more than the
worst case. If they drop the price by $100 to $400/t they will need to sell at least 813 tonnes of KCl or 163 t
(25%) more than the worst case to match its revenues. They therefore need to be very confident that
reducing the price will have the desired effect otherwise it is not worthwhile – a drop of $25 from the price
without commensurate volume would reduce revenues by 5% for no gain. As there is almost no risk that
they will lose more than 35% of the volume it suggests that unless they have guarantees that modest
reductions in price will ensure volumes are maintained, commercially it will make more sense to maintain
prices and surrender volumes. The decision might be different if they could lose all the volumes, but this is
not the case.
Of the parameters drawn by CRU we would therefore expect the demand response to be closer to
the No Industry Response than the High Industry Response.
That having been said, the reaction of the SOP suppliers is likely to be more robust than MOP suppliers.
Whilst the blender and compounder sector is important to MOP producers, they do also sell significant
volumes through the wholesale / retail chain for direct application. This is less the case for SOP, where
most standard and granular sales are to blenders and compounders. Mannheim process producers might
have less scope to respond on the basis of product cost, but equally primary producers with lower costs in
large blending markets such as North America could well be much more assertive. Key to the possible
difference in reaction between MOP and SOP producers is the fact that polyhalite might take up to 13% of
the MOP market, but has the potential to take up to 40% of the SOP market. The level of industry
response will therefore also be influenced by the marketing choices taken by York Potash, with a
greater response from the industry the more that the marketing strategy focuses on the
substitution of SOP and SOPM.
One issue which is implied in CRU’s study but not discussed is the uncertainty surrounding the MOP
market and pricing between 2018 and 2025 due to the changing nature of the supply side. Most MOP
producers currently make good margins because the supply-side of the industry is effectively managed.
Supply from Canada is co-ordinated by Canpotex which sells the potash from all three of the current
Canadian producers allocating volumes proportionally to their capacity. Until recently all sales from Belarus
and Russia were sold through the Belarusian Potash Company (BPC) which was jointly owned by
Belaruskali (45%) the Belarus State Railway (5%) and the Russian producer Uralkali (50%). Canpotex and
BPC between them controlled 71% of global trade, and the Canadian producers in particular were prepared
to reduce supply to maintain prices. In 2013 BPC broke up, but after some initial excitement Uralkali has
taken a harder line on pricing than they initially indicated they might, and therefore although prices have
come down it remains a managed market.
Irrespective of York Potash the supply side will change toward the end of the decade. The major Russian
fertilizer producer Eurochem is currently building two potash mines in Russia (Volgakali and Usolskiy
Potash) which will bring a total of 8.3 million tonnes of capacity on stream in two phases – 4.6 million
tonnes over the two mines in the first phase between 2018 and 2022, and 3.7 million tonnes in the second
phase. Eurochem will want to establish effective utilisation rates on the mines, i.e. over 70%, as quickly as
possible. In addition to this there remains the potential that BHP Billiton will commission the initial phases of
its Jansen project in Saskatchewan which promises 8.0 million tonnes in (at least) 2.0 million tonne
increments over time. BHP Billiton would not be a member of Canpotex and therefore the managed aspect
of supply from Canada would be eroded. The impact of these changes will be reflected somewhat in CRU’s
2018 price forecast, but it is important to stress the uncertainty that these developments bring with them.
Significant capacity has been added by MOP producers over the last 5 years, but all of it has been from
current producers. The industry has not had to accommodate significant new producers for some time. All
forecasts have significant risks associated with them, but it is probably fair to say that the period of 2018 to
2025 currently has more uncertainty about it than is usual for the potash industry.
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ECONOMIC ASSESSMENT
Uncertainty is uncertain, and therefore the impact on market prices is, at least in theory, equally likely to
provide up-side opportunity as it is to provide down-side risk. What prompts some caution however is that
whilst industry margins remain good there is considerable scope for MOP producers to defend volumes
when new producers such a Eurochem come on-stream. As the influence of Canpotex, Uralkali and
Belaruskali moderates it does tend to point to greater downside risk than up-side potential. The significance
of this for the York Potash project relates to the No Industry Response which assumes steady-state prices.
If the relative prices of MOP and SOP are lower than assumed in the forecasts then either the potential
market is reduced or the price at which polyhalite needs to be sold to achieve equivalent volumes is
reduced.
The analysis presented here is based on the prime nutrient marketed in polyhalite being K2O. Sulphate
suppliers are likely to have a different response, as ammonium sulphate, gypsum and elemental sulphur
are all produced involuntarily, which means a proportion of the supply has disposal rather than margin as a
key attribute in any sale. Involuntary producers are likely to compete vigorously to maintain share. This
suggests that whilst the overall reaction of the industry is will be closer to CRU’s No Industry Response,
actuality will depend on the product being substituted, and the market in which the substitution takes place.
CONCLUSIONS OF THE ECONOMIC ASSESSMENT
Overall we believe that the analysis completed by CRU is fundamentally robust. There are some
differences of view we have, of which the most important are:

The substitution value of K2O: CRU has valued the intrinsic value of K2O based on a CIF (delivered)
value for granular MOP arguing that freight is taken into account in the model. We have no issue with
this per se, but would still expect that on a fob Teesside basis the value of K2O will need to be
competitive with other sources on the same freight basis. Our assessment of those values are
somewhat lower than CRUs by up to $11/t in polyhalite.

We do not think that polyhalite will be easily able to sustain a premium with blenders and compounders
versus MOP on account of it being chloride free. Blenders and compounders will be assessing it
versus their main K2O purchase, which will be MOP. Polyhalite can only compare its intrinsic value with
SOP at customers that only purchase SOP. Where they buy both MOP and SOP the default will be
MOP.

We believe that the potential time taken for competitors to react to competition is longer than assumed
by CRU. However in general we would expect that most suppliers are more likely to accommodate
polyhalite to maintain price levels that they would be to compete aggressively on price. This is because
polyhalite cannot fully displace MOP or SOP in most instances, and at most blenders is unlikely to
displace more than 35% of the K2O purchased.
CRU has calculated the potential maximum market for polyhalite at price points between $100/t and $200/t
FOB Teesport, based on the two extremes of no industry response and high industry response. We believe
that, within the potential accuracy of any such modelling exercise, this fairly depicts the likely relationship
between price and potential. We think the overall theoretical potential market is marginally larger at up to
50 million tonnes, but likewise we think the pricing to ensure such a market would be between $100/t and
$150/t. .
We draw slightly different conclusions however from the analysis. In the opinion on FERTECON, if York
Potash wishes to sell 6.5 million tonnes growing to 13 million tonnes there will be important
marketing choices to make which will impact on the net selling price achieved. This is because of the
structure of the industry.
Conventionally one might view market share as a straight proportion of the market one is selling in to. In
this instance, if considering the volume of K2O York Potash will be marketing, the global market share
represented by 13 million tonnes polyhalite is 3.9% (1.82 million tonnes out of a market forecast for all K2O
3-53
ECONOMIC ASSESSMENT
at 45.8 million tonnes in 2018). This might seem to be entirely reasonable. However, such a calculation
assumes that polyhalite could substitute 100% of the K2O at all potential customers, which it cannot. In
practice polyhalite is unlikely to be able to exceed 50% substitution for MOP and SOP at most blenders,
and typical substitution rates are likely to be in the 30% to 40% range. At compounders the level of
substitution will be lower. Some sales may be made in direct application but, as noted earlier, the ADAS
report submitted in support of the project suggests these will probably be modest, and will be limited by the
total volume of sulphate farmers are prepared to use. Market share should more reasonably be calculated
as the proportion of the market in which they will need to sell in order to achieve their goals. Rather than
3.9% this is just over 14%. It should be noted that these calculations are based on total global K 2O demand
in 2018, and therefore ultimately the sector into which the polyhalite is sold whilst relevant, does not affect
the calculation. In the following diagram we illustrate the difference in the assessment of share.
SHARE OF K2O MARKET REQUIRED TO SELL 6.5 MILLION TONNES POLYHALITE
Conventional Assessment of Market Share
Polyhalite share
of total K2O is
15%, and YPL
targets 4%.
Implications of Market Structure on Share
York Potash needs to sell
to 14% of the total market
to achieve 13 million
tonne polyhalite sales
York Potash
Polyhalite
Blenders &
Compounders
Other K2O
Markets
Blenders &
Compounders
Other K2O
Markets
To achieve 13 million
tonnes polyhalite Sirius
will need a 26% share in
target markets
The conclusion from CRU’s analysis is that the higher the sales price of polyhalite, the smaller the potential
global market for the product will be, and by definition the higher the share of sales York Potash will need to
achieve. The clear implication from the market structure is that York Potash will face marketing choices which
will trade-off between volumes and value. The more it seeks to maximise price, the more it will constrict its
potential market, and the more difficult it will be to identify and successfully sell to customers, which in turn
may constrain volumes. CRU estimated the potential market at $150/t as 15.05 million tonnes, i.e. York
Potash would need an 87% share of the market potential if it is to achieve that price.
Other factors which point to the impact the specific marketing strategy eventually employed by York Potash
will have on the price achieved include:

In common with all fertilizers, polyhalite is a commodity. Commodities trade on price. Most sellers of
commodities try to differentiate their products, but fundamentally they sell on price. This theory
underscores CRU’s report – if the price is right the product has value. As a commodity it is competing
with all other commodities supplying K2O into relevant markets such as MOP and SOP.

To use polyhalite all compounders and blenders will need to invest in more storage or handling
equipment. Polyhalite is unlikely to completely substitute another product (such as eliminate the use of
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ECONOMIC ASSESSMENT
SOP or AS), and therefore to use it blenders might need to invest in a new storage silo, feed hopper
etc. Although the level of investment needed is likely to be modest, to make this investment they will
want to be convinced of a long-term return. This reinforces the view that the product is likely to sell
based on a prime nutrient (either K2O or sulphate) with the presence of other nutrients not attracting a
monetary value, but effectively buying share.

Supply will be limited for the foreseeable future to two producers. Buyers generally want accessible
competition for any commodities they buy, and there might be consumer reluctance to commit to
polyhalite based on the limited number of producers. To overcome such fears the price offering will
need to be compelling. It is true that buyers will always retain the ability to switch back to current
sources of K2O, but this is not a compelling reason to make the change, and is unlikely to feature
highly on the decision making process to switch to polyhalite.

It is a new product. Consumers will want to see agronomic data to prove why polyhalite, as opposed to
a combination of similar levels of the same nutrient from other sources, offers value before they would
consider paying premiums, and even if and when such evidence is forthcoming they will want to
complete their own trials with customers before fully backing the product. This suggests that either
York Potash will need to patiently build the market to obtain maximum value, or chose to take volumes
by competing on price.
It is worth commenting on the fact that Cleveland Potash, the only company worldwide actively marketing
polyhalite, has chosen to categorise the product as a sulphate with additional K2O and MgO. This is logical
in that sulphate is the largest component in nutrient terms in polyhalite. Would our conclusions be
significantly different if York Potash was seeking to primarily promote the sulphate content, rather than the
multi-nutrient properties of the product.
We do not believe that either CRU or FERTECON would have come to significantly different conclusions if
the key focus was on sulphate. The reasons for this are:

The current market for sulphate and sulphur products in fertilizers is much less well defined than
potassic fertilizers. Ammonium sulphate, gypsum (calcium sulphate) and elemental sulphur, all of
which are key sources of sulphate or sulphur for fertilizers are mostly produced involuntarily or, in
the case of gypsum, there is a significant involuntary source (phosphogypsum). For involuntary
producers the first goal is to move the product, as they do not want to be generating significant
stockpile of product if they can avoid it. Where possible they will seek to make a good return on the
product, but not at the cost of significant inventory build-up. This will continue to be the case, and if
oil and gas production forecasts are correct, the surplus of elemental sulphur will become
problematic in years to come. This all suggests that the intrinsic value of sulphate is, and will
remain low, and certainly lower than the intrinsic value of K2O.

The current market for sulphate is smaller than the market for K2O. As there is no consolidated
data set for sulphate this assertion is difficult to quantify. The combined sulphate supplied by SOP,
SOPM, AS and SSP is some 10.8 million tonnes at the current time, or 31% of the total volume of
K2O sold. Gypsum is more of a regional market and we do not have good data for it. There are
smaller volume products such as the emerging grades of sulphur and sulphate-impregnated MAP,
urea sulphate, ammonium and potassium thiosulphates and sulphur bentonite which between
them are unlikely to account for more than a further 4.0 million tonnes. So unless agricultural use
of gypsum exceeds 100 million tonnes (or 18 million tonnes of sulphate) the sulphate market,
whilst growing well, is a smaller one approach. Marketing polyhalite exclusively against sulphates
would require higher market shares than marketing against K2O.
The key characteristics of the sulphate market when considering polyhalite are that it is smaller than K2O
and the product is much less highly valued. We can understand why Cleveland Potash, as a KCl producer,
might want to differentiate polyhalite from potash but for York Potash such an approach would be unlikely
to have significant benefits.
3-55
ECONOMIC ASSESSMENT
CONCLUSIONS
The objective of this report has been to provide in overview a critique of the Study prepared by CRU
Consulting in April 2014 on the market for polyhalite for Sirius Minerals. In particular we have looked at the
methodology used and the evidence presented and assumptions employed. Our conclusions are as
follows:

CRU’s methodology for assessing the theoretical potential market for polyhalite is
fundamentally robust. FERTECON employed a different methodology for assessing the market, and
came to very similar conclusions in terms of the overall potential assuming the product is priced
appropriately to capture it.

The maximum theoretical potential global market size for polyhalite assuming it is appropriately
priced will be up to 50 million tonnes product in 2018. This is likely to grow to around 53 million
tonnes by 2025. However it is important to note this is a theoretical maximum volume. In practice it is
probable that because of the multinutrient content of polyhalite the actual maximum market size will be
smaller – the complexities of formulating with polyhalite coupled with the fact that not all farmers will
want additional sulphate or magnesium in their formulations will moderate the actual market size.

The multinutrient nature of polyhalite has strengths and weaknesses in terms of its
marketability as a product.
Strengths
 Mulltinutrient – provides customers with K2O,
sulphate and magnesium
 Chloride free
 Highly flexible in terms of incorporation into
formulations for NPK, NK and PK fertilizers as a
source of K2O.
 Comparatively high level of sulphate makes it a
good source of sulphate for farmers
 Total nutrient content of 39% (excluding Ca)
makes it a transitional product between low and
high analysis fertilizers.
 Natural product, and therefore can be
considered at a source of K2O, sulphate and
magnesium for the organic sector.
 Magnesium is required for chlorophyll
production. Where vegetation is stripped from
the field (e.g. straw is baled) magnesium levels
will drop. A low dose routine magnesium
fertilizer has potential benefits.
 Better source of S than SSP, although because
of the the latter is a phosphate and polyhalite a
potassic fertilizer the substitution potential
versus SSP is extremely limited.
Weaknesses
 Multinutrient – Provides complexity in
formulations and not all customers want sulphate
and magnesium.
 Fixed nature of proportions of K2O, sulphate, and
magnesium is less flexible in formulating than
individual sources of the nutrients.
 Low K2O content means MOP / SOP can only be
eliminated from formulations when the combined
nutrient content is generally less than 35%, and
the K2O content below 10%.
 Sulphate level is comparatively high which
mitigates against its use as a straight fertilizer
source of K2O.
 Low K2O content at 14% makes competition in
the K2O market expensive due to logistics costs.
 Lower sulphate content compared with AS,
SOPM or keiserite make the logistics costs for
polyhalite comparatively more expensive on a
per tonne S basis.
It is not possible to assess how much of the potential market will not be accessible to polyhalite due to
its multinutrient nature.

The conclusion from both CRU’s and FERTECON’s analysis is that the higher the sales price of
polyhalite, the smaller the potential global market for the product will be, and by definition the
higher the share of sales York Potash will need to achieve if they are to meet their sales targets.. The
clear implication from the market structure is that York Potash will face marketing choices which will
trade-off between volumes and value. The more it seeks to maximise price, the more it will constrict its
potential market, and the more difficult it will be to identify and successfully sell to customers, which in
turn may constrain volumes.

In order to sell 13 million tonnes, we believe York Potash will need to price the product
competitively. The ultimate price achieved by York Potash will depend on the marketing
choices it takes. CRU noted that the market size would constrict as the average price increased.
Factors which influence this conclusion are:
4-56
CONCLUSIONS
o
Polyhalite is a commodity and commodities trade on price. If Cleveland Potash and York Potash
are successful they are likely to attract other producers into the market and the need to compete will
increase. Product pricing and customer service will be the key means of differentiating the
companies as the means to gain sales.
o
Using polyhalite will require investment by blenders and compounders in more storage or
handling equipment. Polyhalite is unlikely to completely substitute another product and therefore to
use it blenders might need to invest in a new storage silo, feed hopper etc. Although this
investment will be comparatively modest, they will want to be convinced of a long-term return, i.e.
a commitment to competitive prices versus competing products. It reinforces the view that the
product is likely to sell based on a prime nutrient (either K2O or sulphate) with the presence of
other nutrients not attracting a monetary value, but effectively buying share.
o
Supply will be limited for the foreseeable future. Buyers generally want accessible competition
for any commodities they buy, and there might be consumer reluctance to commit to polyhalite
based on the limited number of producers. To overcome such fears the price offering will need to
be compelling.
o
It is a new product. Consumers will want to see agronomic data to prove why polyhalite, as
opposed to a combination of similar levels of the same nutrient from other sources, offers value
before they would consider paying premiums, and assuming such evidence is forthcoming they will
still want to complete their own trials with customers before fully backing the product, even though
York Potash will have possibly 6 years of trail data available. It suggests that either York Potash
will need to patiently build the market to obtain maximum value, or chose to take volumes by
competing on price.

CRU and FERTECON have an important difference of opinion regarding the SSP market. CRU
expects this to grow, FERTECON expect is to contract. The significance of this difference is mitigated
by the fact that SSP is of diminishing importance in the NPK blend market, because of its compatibility
issues with many of the nitrogen products used in the blends, and because it is only generally available
in countries which have local phosphate rock production. Assuming the blended market is a key target
for York Potash, then whilst this difference should be noted, it is probably of limited significance in
terms of the overall market for polyhalite.

CRU’s assessment of the NPK market size is not possible to properly validate. Their assessment
of the size of compounds is higher than either IFA or FERTECON’s assessment for complex products,
but this is because they are also including granulated products used by steam granulation etc. Whilst
the estimate cannot be properly validated, it is likely to be of the correct order of magnitude, and
therefore for the purposes of the assessment is robust enough to provide a reasonable analysis.
It is impossible to verify the volumes of bulk blends forecast by CRU. CRU’s model is not dependent on
NPK demand forecasts as it only considers substitution of the raw materials which go into bulk blends.
It is however critical for FERTECON’s approach which takes into account the full extent of the practical
ability to use alterative products based on the typical mix of products produced. Based on known
capacities for simple compounds and blends and anecdotal evidence of the use of KCl and SOP we
think that the volumes forecast for blends by CRU are more likely to understate reality than overstate
reality. The implication is that their forecast can be used as basis for assessing the possible market for
polyhalite, as the more likely risk is to the up-side.

There are very few formulations in which polyhalite could not be included, assuming willingness
of the manufacturer to use the product. However the higher the nutrient analysis for a
multinutrient fertilizer, the lower the volume of polyhalite that will be used in the formulation.
The data in from our analysis shows that:
o Complex fertilizers tend to have higher analyses than blends, and will provide much more limited a
market for polyhalite than bulk blends.
4-57
CONCLUSIONS
o
o
o
The range of possible K2O substitution by polyhalite for complex fertilizers is mostly between 10%
and 25%.
The typical range of K2O substitution in blends is between 30% and 40% for MOP, and extends up
to 100% especially for products with a K2O content at or below 8%.
The typical range of K2O substitution in blends is between 35% and 45% for SOP, and extends up
to 100% for products with a K2O content at or below 8%.

The major producers of NPK fertilizers tend to produce compound (complex) fertilizers. The
implication of this for York Potash is that the majority of sales will ultimately be the mid-size and
smaller wholesalers and blenders. This constituency may pay marginally higher prices as their annual
volumes are smaller than the largest producers, but equally selling costs are likely to be higher as
smaller volumes need to be shipped to a larger number of users.

We do not think that in most markets polyhalite will be able to sustain a premium with blenders
and compounders versus MOP on account of it being chloride free. Blenders and compounders
will be assessing it versus their main K2O purchase, which will be MOP. Polyhalite can only compare
its intrinsic value with SOP at customers that only purchase SOP. Were they buy both MOP and SOP
the default will be MOP.

Industry response: Our analysis suggests that if producers of competitive potassic fertilizers behave
rationally, it is more likely that they will err toward CRU’s No industry response rather than the High
industry response. This is because the market for polyhalite is curtailed by its low K2O analysis.
Polyhalite is only likely to take up to around 35% of K2O at any blender, and quite possibly less
depending on the mix produced. The risks to the remaining 65% of the K2O which will continued to be
supplied by MOP or SOP are such that the competitor will need to be completely confident that
reducing the price will keep polyhalite out before they reduce the price – there is a higher risk of not
succeeding and then still only having a 65% share but at a lower price. However, because polyhalite is
likely to be limited to a maximum share of 13% of the MOP market, whereas it can potentially access
40% of the SOP market, it is likely that the reaction of SOP producers will be more assertive than MOP
producers. It is also reasonable to expect a more assertive reaction for any direct application sales
where the incumbent supplier may risk all their sales to polyhalite. The reaction of suppiers of sulphate
(AS, gypsum, or sulphur) will be different as production of these products is either completely or
partially involuntary, and it is more important to move the product than to maintain a price level. So if
the prime nutrient marketed in polyhalite is K2O then the overall industry response is likely to be muted.

Were York Potash to place the marketing emphasis on sulphate rather than potash, as is the case
with Cleveland Potash, the general conclusions drawn from this analysis would be no different.
o
Three of the major sources of sulphate and sulphur for fertilizers arise from involuntary
production. For involuntary producers the first goal is to move the product, as they do not want to
be generating significant stockpile of product if they can avoid it. This suggests that the intrinsic
value of sulphate is, and will remain low, and certainly lower than the intrinsic value of K2O.
o
The current market for sulphate is smaller than the market for K2O. As there is no
consolidated data set for sulphate this assertion is difficult to quantify, but excluding gypsum the
current market for sulphates and sulphur in fertilizers is not more than 20 million tonnes compared
with around 34 million tonnes for K2O.
The combination of needing to compete in a smaller market with products produced involuntarily does
not suggest an ability to obtain or maintain high prices.
Our overall conclusion is that whilst CRU’s study is robust in terms of its data and methodology,but by
omission it does not define the impact of the market structure and the practical implications of product
formulation on the market for polyhalite, and how that will impact on the marketing decisions to be taken by
York Potash. We think that the evidence of these factors suggest that York Potash will have important
4-58
CONCLUSIONS
marketing decisions to take, which will undoubtedly affect the economic impact of the project. The balance
will be between the volumes sold, the prices achieved, and the time taken to build the market. The analysis
shows that there is a potential market which will allow the marketing of 13 million tonnes as the evidence
suggests that the maximum theoretical potential market for polyhalite in 2018 is up to 50 million tonnes
assuming a competitive enough price. This comprises around 35 tonnes in substitution of MOP, 11.6
million tonnes in substitution of SOP, and up to 5 million tonnes in substitution of SOPM. This will present
York Potash with choices in terms of marketing. If it chooses to market solely against SOP and SOPM it
may be able to secure higher price levels for polyhalite, but will need to take up to 75% of the maximum
potential market by 2025 in order to market 13 million tonnes of polyhalite. If it chooses to broaden its
marketing scope to include substitution against MOP it will have a significantly larger market to approach,
but as most of the users will be common to the SOP substitution market (the blenders and compounders)
the opportunity to obtain a premium over the substitution value for MOP will be restricted. As these are
potential maximum market sizes, the risk is to the downside, i.e. a smaller market.
The net selling price obtained by York Potash will depend on the choices it takes. CRU’s demand model
suggests that the maximum market with no industry response at $170/t is 13 million tonnes, and at $150/t
is 15 million tonnes. Their conclusions were that for York Potash to sell 13 million tonnes either prices
needed to be less than or equal to $170/t fob Teesside where there was no reaction from incumbent
producers, or with significant reaction price levels at the limit would need to be below $110/t25. We agree
with this conclusion, but believe that although the industry response is not likely to be so intense as to
trigger the lower limits, there will be an industry response. We therefore believe that to market 13 million
tonnes the likely price range will be between $110/t and $150/t, with the precise position in that range
determined by the marketing choices taken by York Potash, and the balance it can make between
maximising prices premiums and the time it is prepared to take to build volumes. In our opinion, if it needs
to build 6.5 million tonnes of sales by 2021 and 13 million tonnes of sales by 2024 then the pricing required
will be in the lower end of the range, between $110 and $130/t.
25
CRI Consulting; Polyhalite Market Study: April 2014; p.43
4-59
CONCLUSIONS

Review of CRU Polyhalite Market Study April 2014

Transcription

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